by Grace Bohall
Open enrollment in the individual marketplace is currently in effect until January 31, 2017, and many people are finding that their premiums are skyrocketing again, and out of pocket exposure is also going up. Have you ever thought about a Health Savings Account? A Health Savings Account (HSA) is like a savings account; but you can only use the money to pay for qualified health care expenses, and the money you put into the account is tax deductible. To be eligible for an HSA your insurance must be eligible as a high deductible plan, and have no copays. When searching for a health insurance plan they usually specify whether the account is HSA eligible or not. Let’s look at the advantages and disadvantages of having an HSA:
- Contributions into the account up to the federally allowed amount are deducted from your gross income, which lowers your tax bill.
- When you withdraw the money for medical expenses; it comes out tax free
- Earnings on your HSA account are tax free as well
- Money left over a the end of the year can be used for future medical expenses, even if you no longer have an HSA eligible account
- Money in the account when you turn 65 can be withdrawn without penalty, and only be taxed at your ordinary tax rate.
- You have to have a high deductible plan with no copays which can cause you to be liable for more out of pocket expenses in a year even with the lower premiums
- If you take money out for your HSA for non-qualified expenses before you turn 65 the amount is subject to income tax as well as an additional 20% penalty
- You have to keep receipts to prove your withdrawals were for qualified health expenses
- Some financial institutions charge a bank fee each month
- Health insurance premiums are not a qualified expenses