Facts About Health Savings Accounts
Health Savings Accounts (HSAs) are accounts to which individuals, family members, and employers can make tax-deductible cash contributions. These funds can then be withdrawn tax free, and used to pay for qualifying medical expenses.
Under the current system you must already have health insurance coverage with a high deductible to open an HSA. A health care plan will qualify as a so-called “High Deductible Plan (HDHP) if it has an annual deductible of at least $1,100 for an individual's (self) coverage and at least $2,200 for family coverage. However, paring an HSA with this type of health insurance makes these affordable yet high deductible policies more attractive. The idea is that you will put the money you are saving on the cost of a premium into the HSA and then will withdraw those funds to pay for medical expenses until the deductible is met and the full discounts of the policy kick in. HSA’s are similar to a 401K or IRA in that you are putting away pre-tax dollars into a specific investment account. The funds will grow tax-free and roll over year to year as in a typical tax deferred account. However, it is designed to help defray the costs of health insurance coverage because instead of building that account specifically for retirement savings, you are entitled to withdraw from that account, with no penalty, to pay for qualified health expenses, such as doctors visits, hospitalization even dental, vision care and prescription drugs. And here is the nice thing about an HSA, after 65 you can withdraw funds for non-medical expenses, so they kind of serve the duel purpose of a retirement fund and helping with health insurance coverage. One of the proposed changes before Congress right now would involve significantly raising the amounts of the maximum set asides to cover plans with much higher deductibles.
Any funds contributed to a Health Savings Account either by the beneficiary or his or her employer, belong to the account beneficiary and are completely portable. Money can accumulate in the account with tax-free earnings every year. Unused amounts remain available in later years.
Qualified medical expenses include payments for the diagnostic testing, treatments for a disease or its prevention, and the cost of prescription and non-prescription drugs. Generally Health Savings Accounts are most attractive and effective for basically healthy people who are not suffering from any chronic conditions, or have children that require a lot of doctor’s visits and would have to pay out of pocket for a lot of regular care until the High Deductible is met
You can find out much more about Health Savings account and if they are right for you at by contacting your financial consultant or visit the US Department of Treasury's web site at: http://www.treas.gov/offices/public-affairs/hsa/
Detailed questions and answers also may be found on the IRS web site at: http://www.irs.gov/publications/p969/index.html
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