If you have a qualified high deductible health care plan, either personally or through your employer, you should have been advised to open a Health Saving Account. A high deductible health care plan requires you to absorb the expense of a large upfront deductible before the plan begins to provide benefits. This deductible will often be thousands of dollars, for example $2,000 for an individual and perhaps $4,000 for a family. The government created the Health Savings Account, HSA, as a means to help you deal with these upfront expenses.
The HSA is structured to give you three major benefits. First, you can contribute money to the account and deduct it from your current income for tax filing. Second, the account can earn interest and capital gains that are not included in income for tax filing. Third, the money in the HSA can be withdrawn tax free to cover qualified health expenses. This is kind of like taking the best features of a traditional IRA (reduce taxes) and Roth IRA (use tax free), and combining them in one plan.
Just like everything the government does through IRS tax regulations, the HSA has a number of rules that govern how much can be contributed, how much deducted, what expenses are qualified. It matters to learn about these sooner than later. I emphasize sooner because there are advantages for taking the initiatives that will maximize the value of the HSA, and there are consequences for missteps. For instance, you unintentionally begin coverage under medicare that will prevent you from making further contributions.
Here are a couple of items that I found people are unaware of. First, HSA's are not necessarily restricted to the plan custodian your employer offers. You can often select a different HSA custodian for your contributions. Second, while many HSA's are offered through banks effectively offering savings account rates. There are HSA custodians that can provide you with robust investment choices.
If you're enrolled in a HDHP and contributing to that plans HSA, you may be able to dramatically increase your choice of investments. Feel free to give me a call if you have any questions.
The HSA is structured to give you three major benefits. First, you can contribute money to the account and deduct it from your current income for tax filing. Second, the account can earn interest and capital gains that are not included in income for tax filing. Third, the money in the HSA can be withdrawn tax free to cover qualified health expenses. This is kind of like taking the best features of a traditional IRA (reduce taxes) and Roth IRA (use tax free), and combining them in one plan.
Just like everything the government does through IRS tax regulations, the HSA has a number of rules that govern how much can be contributed, how much deducted, what expenses are qualified. It matters to learn about these sooner than later. I emphasize sooner because there are advantages for taking the initiatives that will maximize the value of the HSA, and there are consequences for missteps. For instance, you unintentionally begin coverage under medicare that will prevent you from making further contributions.
Here are a couple of items that I found people are unaware of. First, HSA's are not necessarily restricted to the plan custodian your employer offers. You can often select a different HSA custodian for your contributions. Second, while many HSA's are offered through banks effectively offering savings account rates. There are HSA custodians that can provide you with robust investment choices.
If you're enrolled in a HDHP and contributing to that plans HSA, you may be able to dramatically increase your choice of investments. Feel free to give me a call if you have any questions.
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