Health Savings Accounts

Health Savings Accounts
by Takara Alexis

Health Savings Accounts (HSAs) have suffered under the complex regulations meant to discourage misuse. However, the accounts have power to do way more than just allow investors to save and pay for health-care expenses with tax-free money.

To be thought of as "qualified" the insurance plan needs to have a deductible of at least $1,150 for individuals or $2,300 for family, and contain a limit of $5,800 individual and $11,600 family for out-of-pocket costs. Choosing a policy that qualifies could include insurance and tax issues that should be discussed with professionals in those fields.

Many employers offer flexibility spending accounts for medical costs (and sometimes child care) that permit employees to put aside pre-tax dollars for medical expenses that aren't covered by the company's health insurance, including premiums and deductibles. Unlike flexible spending accounts, however, HSA contributions and gains can be carried over from year to year - there's no "use it or lose it" requirement - and you retain ownership of the funds even if you terminate employment.

If your employer allows a flexible spending account, you should take a description of the account requirements and limits when you discuss an HSA with your financial professional.

Because you establish an HSA independent of your employer, these accounts can accommodate a health care expense "safety net" should you happen to end your employment (voluntarily or involuntarily). Withdrawals for non-medical costs after the age of 65 are still taxable, and a 10% penalty applies for withdrawals that are non-medical before age 65.

If you plan on using Health Savings Account funds in the next term, a liquid, interest-bearing account such as a savings account might be suitable. However, if you do not count on an immediate need for all or part of your HSA funds, the accounts are self-directed, allowing you to use other investment choices. Your financial professional can assist you with determining which investment vehicle best suits your needs.