A health savings account, more commonly known as an HSA, is a tax-exempt account that allows you to pay for or reimburse medical expenses. You can set up this trust or custodial account with any qualified HSA trustee, or company, that is authorized to do so. Trustees are generally banks, insurance companies, or any other person or company approved by the IRS and they can be different than you actual health plan provider. Basically, the companies that you get these accounts from will be the same ones that work with IRAs and MSAs, as well as other retirement and investment accounts.
There are many benefits to having a health savings account. You will earn interest on the account, and that interest and any other earnings are all tax-free. An HSA is also portable, which means that your contributions are yours to keep, even if you change jobs or stop working altogether. If your employer makes contributions to your HSA, you don’t have to claim those as part of your adjusted gross income. One more benefit of having this account is that all contributions that are made by anyone other than an employer are tax deductible, even if you don’t itemize deductions.
According to the IRS, you must be an ‘eligible individual’ to qualify for this type of account. That means that you have to meet certain criteria. To have a health savings account, you must have a high deductible health plan, also known as an HDHP. You should also have no other health coverage, than your HDHP aside from a few exceptions. Long-term care insurance, accident, disability, vision, and dental insurance are all allowed in conjunction with your HDHP, as is any Medical Insurance that covers workers’ compensation liabilities, tort liabilities, property ownership or use liabilities, specific diseases, and fixed hospital stays. You also cannot be enrolled in Medicare or be a dependent on someone else’s tax return in order to qualify for a health savings account. Most HSA’s are High Deductible Health Plan (HDHP).
There are contribution limits on your health savings account, which vary from year to year. The contribution limits are based on whether you have an individual HDHP plan or an Individual Family Plan, with the family plans allowing for higher contributions than individual HDHP coverage. An HSA is a great way to alleviate the costs of some medical expenses, but you should take the time to understand how they work and what you are eligible for. You also need to work with a qualified trustee who can explain the program to you and help you to determine how a health savings account can benefit you. Health Insurance Premiums are pretty affordable on HSA plans depending on your circumstances.
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