What Is A Health Savings Account?
Definition of "What is a health savings account?"
Did you also notice that healthcare costs have gone through the roof lately? No wonder you’re wondering whether there is a solution to accumulate an extra income to cover your healthcare services. Furthermore, easing the financial strain on individuals and their families would also be helpful. That’s how the concept of health savings accounts (HSAs) came into existence.
What must you know about health savings accounts?
HSAs are among the most popular savings accounts in the United States because they provide a unique way for Americans to save on and cover medical expenses. In addition, they can benefit from much-welcome tax advantages. But are they available for anyone?
What are the advantages of HSAs?
A HSA is available to individuals covered by a high-deductible health plan (HDHP). Explicitly, an HDHP is a health insurance plan with a higher deductible (deducted from taxable income) than traditional plans. However, a health savings account has lower monthly premiums. The good news is that the money you deposit into an HSA is not subject to federal income tax during the deposit. For this reason, you can save on taxes while setting aside funds for medical expenses.
We know how flexible spending accounts (FSAs) are tied to an employer and work on the "use it or lose it" principle. Yet, the funds in your HSA belong to you, and you can carry them over yearly. This provides an excellent opportunity to accumulate savings for future medical bills, even into retirement.
How much can one person deposit into a health savings account?
You (as an employee) or your manager can contribute to an HSA. However, mind the limit! The Internal Revenue Service (IRS) establishes the maximum contribution limit annually and adjusts it for increasing inflation. In 2023, the IRS established contribution limits of $3,850 for individuals and $7,750 for families.
You can make these contributions with pre-tax dollars, reducing your taxable income. Moreover, any interest or investment earnings on your HSA funds will be tax-exempt! No wonder many use pre-tax dollars together with 401k contributions and retirement planning.
Guidelines to follow when using funds in your health savings account
Before opening a savings account, remember the following information. You can pay for qualified medical expenses, like prescriptions, doctor visits, and hospital bills, using your HSA funds. Secondly, your HSA funds might be eligible for non-medical costs, such as COBRA coverage and long-term healthcare insurance premiums. Still, we must inform you that you must keep proper receipts and documentation to prove the costs were qualified.
Which health savings account should you explore in-depth?
Fidelity HSA, HealthEquity, and Lively are among the most popular health savings account providers in the United States.
Fidelity HSA charges you no maintenance or setup fees. Yet, it offers excellent interest rates. Its online platform is user-friendly, and you can track your expenses effortlessly. You even receive a debit card to access your funds anytime.
One of the many perks of opening an HSA at HealthEquity is the possibility to invest your funds in worthwhile financial instruments, like stocks and mutual funds. With competitive interest rates, incredible customer service, an easy-to-use mobile app, and a solid track record, HealthEquity is a reliable HSA provider.
Lively excels in transparency, simplicity, and customer satisfaction. These advantages will earn any company a loyal user base!
Final thoughts
As opposed to traditional health insurance plans, HSAs provide greater control over your healthcare decisions. You won’t have to rely on insurance providers to determine which medical services you are covered for and at what price. A health savings account lets you choose the most suitable healthcare services.
HSAs feature numerous financial advantages, such as tax-deductible contributions, tax-exempt growth of funds, and tax-free withdrawals for qualified medical expenses. Funds portability and control over your healthcare decisions crown this fantastic financial tool. By all means, this savings account can help you reach your goals!
We recommend you shop around for the best prices and fully unlock the benefits of a savings account! You can negotiate with healthcare providers, potentially lowering medical expenses.
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