On December 8, 2003, a Medicare bill was signed that provides individuals the opportunity to save for future qualified medical and retiree health expenses tax-free. Below are Health Savings Account Pro and Cons and frequently asked questions.
What are the Health Savings Account pro and cons?
- The amount you contribute to your Health Savings Account (HSA) may be tax deductible. Consult your tax advisor regarding tax benefits of Health Savings Accounts.
- Money not used to pay medical expenses belongs to you and can be saved for your retirement.
- There is a 10% penalty for early withdrawal for non-medical related expenses.
Who is eligible for a Health Savings Account (HSA)?
If you are covered by a High Deductible Health Plan (HDHP) and you are not covered by other health insurance that is not an HDHP you are probably eligible to open a Health Saving Account (HSA).
How do I know if my Health Insurance Policy is a HDHP?
Check with your insurance carrier. They should know which policies comply with the federal regulations for High Deductible Health Plans and Health Savings Accounts.
Can any bank handle a health savings account?
No, only a few banks currently offer Health Savings Accounts.
What happens to my money when I turn 65?
The money in your Health Savings Account can be used for medical expenses, tax-free, until you are 65 years old. Once you turn 65, you can continue to use your money for health expenses tax-free, or you can use your money without penalty for other items and pay income tax on the amount withdrawn.
If you use the money in your Health Savings Account for non-health related items prior to 65, there is a 10% tax penalty.
How much can I contribute to my Health Savings Account each year?
You can contribute the amount of your deductible each year to a maximum of $3000 for single coverage and $5,950 for family coverage in 2009. If you are over 55 years old, an additional "catch-up" contribution can be made.
How do I decide if a High Deductible Health Plan (HDHP) and a Health Saving Account (HSA) is right for me?
Here are some questions to ask yourself to help you decide:
- How often do you get sick? Are you prone to physical ailments or do you typically visit the doctor for yearly check-ups only?
- Are you young and healthy enough to build-up and take advantage of the retirement savings?
- Would you rather pay high monthly premiums in exchange for a low yearly deductible? Or does the idea of paying low monthly premiums with a high deductible and saving the remainder for future medical expenses (and maybe retirement) appeal to you?
- Does the High Deductible Health Plan you are considering cover major medical and emergency medical situations?
- Can you afford to pay the high yearly deductible if you open this plan today and become seriously ill tomorrow morning?
Where can I learn more about Health Savings Accounts?
For details regarding Health Savings Accounts, visit the official government site for Health Savings Accounts.