High deductible health plans (HDHPs) have become popular in recent years, especially for those looking to lower their health insurance premium costs. While deductibles may be high with an HDHP, they are typically offered in conjunction with a health savings plan, or HSA.
Funds you contribute to an HSA can be used for qualified medical expenses. Perhaps the most enticing feature is that they are not subject to federal income tax at the time of deposit. For 2017, individual contributions are limited to $3,400 and family contributions are limited to $6,750.
How does an HSA work?
You can contribute pre-tax dollars to your account at any time. The funds can then be invested in a similar fashion to retirement accounts, like an IRA. Funds can be withdrawn for qualified medical expenses at any time without getting taxed.
Unlike a flexible spending account (FSA), HSA funds that are not used at the end of the year are your to keep and continues to grow tax-deferred. Funds in your HSA aren’t forfeited at the end of the year.
Another benefit of health savings accounts is that your plan is tied to you as an individual, not to an employer. If you decide to change jobs or health insurance plans, you can take your HSA with you.
Can I withdraw money from my HSA for non-medical expenses?
The short answer is yes. However, if you are under 65 years of age, any money withdrawn for non-medical expenses will lead to a 20% tax penalty. Once you are 65, you can withdraw the funds for any reason without penalty. This makes it a great option for a secondary retirement account to work in conjunction with a 401(k) or an IRA.
Is an HSA right for me?
If you anticipate high medical costs over the next year, a health savings account may not be the best option for you. If you haven’t had time to build up the balance in your HSA, you won’t have the funds available to pay your medical expenses. You will also need to meet your deductible in order for your insurance to kick in, which can be more difficult with an HDHP.
On the other hand, if you have good health overall and can predict your medical expenses with some certainty; an HSA may be a great choice!
Are you interested in a new health insurance plan? If so, consider contacting HealthMarkets Insurance Agency. Our licensed insurance agents can help you find your perfect plan by comparing the cost and coverage of options from more than 200 national and regional insurance companies. We’ll find the right plan for you at a price that fits your budget, and we’ll do it at no cost to you.