A Heath Savings Account (HSA) is like a checking account that is used to reduce payment for qualified expenses. Qualified expenses are defined by the IRS and include: medical, dental, vision, pharmacy costs.
The HSA is used for costs including: deductible payments, coinsurance payments, prescription drug costs not covered by insurance for you & dependents, extra medical services not covered by insurance.
Your contributions are pre-taxed, which reduces your taxable income and allows you to save in the short & long term. The amount you save you is quite large, especially if you reside in a highly taxed state.
For example, Susie from NJ is in the 25% tax bracket. For every $100 she contributes, she saves over $37 in taxes. $25 is saved from not having to pay 25% Federal tax.,$7.65 is saved from not having to pay Payroll tax & $5 is saved from not having to pay State tax. That is quite a bit of savings!
A word of caution: you cannot utilize this card/ account for random expenses until the age of 65, or you will be taxed based on your tax bracket plus a 20% penalty for non-qualified withdrawals.
Once you turn the age of 65, you can use the HSA for any expenses (flowers for you wife, groceries, trip to Barcelona, shoes, Broncos tickets, etc.). There is no longer a penalty; only your current (low) tax, based on your current tax bracket. Because of this, many people utilize the HSA as a way to save toward retirement.
The HSA is portable, meaning that this account stays with you even if you leave the country, switch employers or change health insurance. And any dollars you do not use in a current year roll over.
For 2017, the maximum amount you are allowed to contribute for single coverage is $3400. For family coverage, that maximum is $6750. If you turn the age of 55 at any time during the calendar year, you can contribute an additional $1000 per year.
Not all companies/ health plans offer an HSA. Typically plans only allow an HSA if your plan year deductible is over a certain amount. Check with your company benefits team if you are eligible for an HSA & start contributing today! An HSA does not have an Open Enrollment period, which means you can start contributing money at any time.