A health savings account (HSA) can benefit individuals with high-deductible healthcare plans. The federal government created HSAs to encourage people, via attractive tax deductions, to save for health costs not covered by insurance. As of 2012, each individual can deposit up to $3,100 each year in an HSA. Family plans allow up to $6,250 in yearly HSA contributions. Generally, HSA contributions can be deducted from your yearly income - resulting in income tax savings.
Qualifying for an HSA
To open an HSA, you must have a qualified, high-deductible health insurance policy. In 2012, individuals must have a minimum health insurance deductible of $1,200 to be eligible. Family insurance plans must have deductibles of at least $2,400. Maximum deductibles also apply. If your individual deductible is more than $6,050, you do not qualify for an HSA. Families cannot have yearly deductibles of more than $12,100. Your health insurance carrier can tell you if your policy is HSA approved.
Most Banks Offer HSAs
Most major banks offer HSAs. Health insurance companies usually work with particular banks to make opening these accounts easy for their customers. If you purchase your own insurance, you can choose any bank you want to service your HSA. If your employer provides your health insurance, you may be required to use a specific bank. You can deposit money into your HSA just like you do with any other savings account. HSA money remains in the account from year to year, just like a traditional savings account. You can use a cash card to pay for deductibles and certain out-of-plan products and services.
Tax Free Interest
The interest your HSA earns is not taxed so long as you spend the money for health care costs. If you spend HSA money on other things, your interest is taxed. The IRS can also penalize you an additional 20 percent of the amount you withdraw for non-medical purposes. The penalty does not apply if you are over age 65. Tax-free interest allows your HSA to compound and grow over time.
Reporting Deposits and Withdrawals
You must report all HSA withdrawals each year on your income tax return. Your bank should provide you with the amount of your annual withdrawals at the end of each year. Your bank should also provide you with the amount of your yearly deposits so you can claim your entitled tax deduction.
An Insurance Lawyer Can Help
The laws surrounding health savings accounts can be complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact an insurance lawyer.