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From time to time I get asked about Health Savings Accounts (HSAs). There are actually five things you should know about these in order to make an informed decision about your medical needs presently and for the future.
What are the prerequisites?
If you have a deductible of $1,100 as a single person or $2,200 if married for a High Deductible Health Plan (HDHP), you may be able to take advantage of this tax-free vehicle to manage your health care costs. An HDHP is a type of insurance plan that covers you after skipping the first few thousand dollars of cost. The HSA covers you for that first few thousand dollars. some people prefer this arrangement as opposed to the the standard healthcare plan because it operates like an account that the contributor has direct control over.
What are the “benefits” of this benefit?
When you utilize this type of plan you have a lot of freedom as to where you get your care. You can also invest the unused portion of money saved in this account to invest and actually produce an interest yield. This is something that is not possible with a patient/HMO/provider/insurer relationship. The reason it is stipulated to have an HDHP concurrent with the HSA is so that in the event the funds in your HSA run out, you will be covered by the HDHP. That is what was meant by: “…skipping the first few thousand dollars,” mentioned above.
What does it cost to get started?
It does not cost anything to set up this type of arrangement and, in fact, many employers offer this as an alternative. If your company does not provide this, you can visit an insurance company, credit union, or a bank. Your contribution is the only “cost” involved, and that is at your discretion.
What is the difference between and HSA and an FSA?
Some people refer to HSAs as Flexible Spending Accounts (FSAs). Just like an HSA, a Flexible Spending Account is an employer-sponsored plan that lets you deduct dollars from your paycheck and put them into a special account that is protected from taxes. However, there are two types of FSAs: Healthcare and Dependent care. The Healthcare FSA is the same as an Health Savings Account.
What are the maximum contribution limits?
Whether an FSA (Health Plan) or HSA, the money in these accounts can be used for eligible expenses incurred by you, your spouse and your dependents. FSA accounts are exempt from federal taxes, Social Security (FICA) taxes and, in most cases, state income taxes. The Maximum you can contribute to the Healthcare FSA is $5,000. The Maximum for the Dependent care FSA is $5,000. The Maximum for the Dependent care FSA is $5,000 if you and your spouse are filing jointly, and/or an overall max of $5,000 between you and your spouse if filing separately.
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