How does your health savings account look? Never heard of it? A health savings account, or HSA, is tax-advantaged medical savings available to taxpayers in the United States who are enrolled in a health plan. If you have a high-deductible health plan or are interested in getting an HSA, look no further.
What Can You Do With An HSA?
When you save money in an HSA, it uses your untaxed savings to pay for your deductibles, copayments, coinsurance, and other expenses. This does not include premiums–that cannot be paid by an HSA. An individual can save up to $3,550 an HSA in 2020. Families with an HSA have a limit of $7,100. Due to federal rules, those who are 55 or older can increase their annual contributions of up to $1,000 per year. Money in your HSA can also be used to grow your savings faster. And remember, it’s not considered taxable. Your HSA follows you even if you change jobs or enroll in a new health insurance plan that doesn’t qualify. You can assign beneficiaries of HSA’s for medical emergencies. After you turn 65, your funds can be withdrawn without a tax penalty even if it is used on expenses besides medical.
Cons of a Health Savings Account
Sounds pretty great, right? But even an HSA has its cons. As stated earlier, you can only use a health savings account if you have a qualified high-deductible health care plan. Each state is different with how they offer deductions on state income taxes for HSA contributions. Your state might be one of them, check https://www.healthshare.hsaforamerica.com/state-income-tax/ for more info. You also have challenges when it comes to saving for your HSA or budgeting during the year. Since you can never predict how much a medical emergency will cost you, you might try to hold off on treatment rather than use your funds, which can be risky. Any withdrawal from your HSA for an unqualified medical expense can cost you a 20% fine, though as stated previously this doesn’t apply after the age of 65.
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