Rising healthcare costs have led more and more people to require high-deductible health insurance plans as well as use Health Savings Accounts. The problem is that healthcare is more expensive than ever before, which means more and more Americans are unable to afford it. With the promise of affordable healthcare from the Obamacare plan, many people have learned that affordable healthcare is now only available for those who are on the lowest end of the income spectrum while those in the middle are no longer able to pay for health insurance. You see, whereas the middle class was once able to afford health insurance, it’s now so expensive that even the least expensive plans are the ones with the highest deductibles and most outrageous out-of-pocket expenses.
That’s where health savings accounts come into play. These are accounts in which those who have a high-deductible plan with many out-of-pocket health care expenses are able to put money – pre-taxed money – into the account to assist in offsetting the cost of health insurance. This is an account that does help you out when it comes to your income taxes, and there are a few other benefits to having a health savings account, too. If you’re still looking for that new health insurance plan for 2016 and you’re not sure what to do, we have everything you’ve ever needed to know and wanted to know about health savings accounts right here. Hopefully, this will make it a bit easier to choose a health insurance plan for the New Year before the open enrollment period ends.
What is a Health Savings Account?
A health savings account is basically a savings account you use to save for your medical costs. It’s kind of a downer for some, because there was once a time in which no one needed to save for their health costs because they could afford low-deductible plans that didn’t require spending thousands and thousands of dollars out of their own pockets before their insurance would kick in and help them cover the cost of their medical care. Now, however, insurance is basically a load of nonsense with no benefits to most every average taxpayer in the world, and it’s something that you might consider.
Essentially, you place pre-taxed funds into a health savings account throughout the year that you can use when you have medical bills. Perhaps you have a little accident at work and require a few stitches. You can use the money in this account to pay for that hospital bill when it arrives since you very likely will not meet your very high deductible and no medical costs will come out of your insurance plan. The good news is that now you have some money to help with your medical expenses, as well as some tax deductions you can take to lower your adjusted gross income and overall tax liability.
What Can You Contribute?
There are contribution limits for all health savings accounts, but the good news is that these limits are the same for everyone. There are not changes based in personal income and tax brackets. If you happen to be a single taxpayer with a health insurance plan that has a deductible of at least $1,300, you can contribute as much as $3,350 per year to your health savings account. If you happen to be age 50 or older, you can contribute $4,350 to your health savings account. If you are a family, you must have double the minimum deductible, but you can also double the contributions to your health savings account each year.
Even better news is that you never pay any withdrawal penalties or fees when you remove money from your health savings account. You are not required to pay anything additional to take money out, but only if you use that money to pay for health-related expenses. This includes anything from your doctor appointments to your medication to anything that helps you to get healthier and live a longer and better life.
All that money is being given to you to use for your medical expenses and you never have to pay taxes on that money. That’s a big deal; and that’s why it’s worth having a health savings account if you meet the required deductible plan. Finally, there is no way you will lose that money if you don’t use it, like you might with a flexible spending account. You can roll over your health savings account, you can use it for anything you want, and you can make sure that money is there for your medical needs anytime you want. This is great news for those who have issues such as pregnancy that might make the following year a very expensive one in terms of medical costs.
How Much to Contribute?
If you have a health savings account, you can contribute as much or as little as you want. There is no requirement. In fact, insurance experts state that the average family pays in around $25 to $40 per month into their health savings account so that they have a little money available to them throughout the year to help with medical expenses. You can contribute as much or little as you want, so go ahead and choose your own contributions.
On that note, it’s a good idea to contribute the maximum, since that is what best allows you to take advantage of tax deductions. The more you contribute, the lower your adjusted gross income becomes, which means the less taxes you pay. The goal is to pay as few taxes as possible so you can enjoy the money you earn without paying taxes. And no, it’s not enjoyable to use your income to pay for outrageous medical expenses, but it is nice to know that it’s there, it is tax-free and it’s yours.
Other Benefits of a Health Savings Account
There are a number of benefits associated with a health savings account that we have already discussed, but we can get more into other benefits for a small portion of HSA owners. Those who are 65 or older are free to take money out of their HSA for anything they want. There is no penalty for health savings account owners to remove money for anything from a down payment on a car to a vacation so long as they are aged 65 or older.
If you are younger than 65 and choose to withdraw money for anything other than a health-related expense, you’re going to pay a withdrawal penalty for that, much like you would removing funds from a retirement account.
At the end of the day, it is less the tax benefits of the health savings account and more the health-related benefits of the account that do make it worth it. You never know when something might happen and you are forced to pay an exorbitant amount of money for a health-related cost that was not in the plan for your finances, and that’s when this type of account comes into play. Medical costs are not inexpensive, and insurance is not all that helpful for many taxpayers anymore when you have a high-deductible. This is an account that provides you with the ability to save money on medical expenses by having the funds to use to pay for them when they occur.
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