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January 14, 2012
Health Savings Account Cures High Health Care Cost
Health Savings Accounts allow you to contribute money to a savings account that earns tax-free interest, or invest money in stocks and bonds or mutual funds for tax-free earnings. You can tap your Health Savings Account (HSA) money to pay for medical expenses for you and your family and the withdrawals are also tax-free as long as you spend the money on qualified health care. That list is pretty long and includes many services that traditional health insurance doesn't cover, like dental care.
Before you can start a HSA, you must have a high-deductible health plan and not just any plan will do. Be sure to get a plan that is qualified to be combined with a HSA.
In addition to requirements regarding the size of the HSA plan's deductible, the insurance company offering the HSA plan must agree to report to the IRS.
As of 2011, high-deductible plans must have a minimum deductible of $1,200 for individual coverage or $2,400 for family coverage to be used in combination with a HSA.
The maximum yearly HSA contribution allowed is $3,050 for an individual plan or $6,150 for a family plan. If you are 55 or older, you can deposit an additional $1,000 every year in what are known as a "catch up" contribution.
Once you turn 65, HSA withdrawals can be used for any purpose. Until then, though, you'll have a 20-percent penalty for using HSA funds for anything other than qualified health care.
Any funds you don't need for health care just roll over from year to year and continue to grow with tax-free earnings. That makes a Health Savings Account very similar to an IRA. You can learn more about starting a HSA here on our website.
Posted by Wiley Long at January 14, 2012 03:02 AM