A health savings account (HSA) is a way to help pay for medical expenses tax-free. HSAs are not for everyone, though. They benefit individuals with a high-deductible medical insurance plan. Any money that you deposit into your HSA during the year is deductible on your tax return, thus lessening your tax burden. You can withdraw money from the account for any qualified medical expenses incurred after the HSA was established, but will not allow pre-existing expenses to be paid from the funds.
What Can The Money Be Used For?
Money from your HSA is limited to certain purposes. In general, the funds can be used for premiums, hospital costs, prescription drugs, co-pays, doctor visits and deductibles. If you use the money for other purposes, it will be taxed as income and you might face penalties. Recent modifications to tax laws allow vision and dental expenses to be paid with money from your HSA, making them more versatile.
Do You Qualify?
You must meet certain qualifications to be eligible to establish a health savings account. You cannot be enrolled in Medicare, as well as be a dependent on another person’s tax return for starters. You must be enrolled in a High-Deductible Health Plan (HDHP) for an HSA. An insurance plan qualifies as an HDHP if the minimum deductible is at least $1,300 for individuals and $2,600 for a family. The maximum out-of-pocket expense allowable with an HSA for individuals is $6,550 and $13,100 for a family plan. Not all HDHP plans are qualified for HSA contributions. Check with your health insurance carrier or employer to see if your plan qualifies.