The company I work for signed up its employees for a health plan with a high deductible. However, I learned that the plan does not cover a pre-existing condition. My employer and I explored if I can set up a Health Savings Account or HSA to help pay for the medical expenses of my pre-existing condition. The insurance company told us that I can only set up a Health Savings Account if I am covered by a health insurance plan that can contribute to the HSA. Otherwise, I will have to deposit more than $1,000 every year into the HSA. How does a Health Savings Account work? Are there any rules that must be followed when using the money in the HSA?
In your Health Savings Account, the money that you did not use at the end of the year is carried over to the succeeding year. The Health Savings Account is different from a Flexible Savings Account wherein the money left after a year is lost. With a Health Savings Account, you can have a large sum of money which you can use to pay for your medical expenses when you turn 65 years old. The money in your Health Savings Account might also be part of the above-the-line deduction. This means that you don’t have to list your deductions to be free from tax. The deductions are also exempt from the phase-out rules. High income earners may still use the deductions that are specified in the list. An individual or his family can set up a Health Savings Account or HSA. If you are employed, your employer can add the Health Savings Account as an add-on benefit to the group health plan being offered to the employees. Another way to set up a Health Savings Account is to buy a health insurance plan that is eligible for HSA. If you have a health plan with a high deductible, then you are eligible to open a Health Savings Account. You can choose from health plans that have deductibles ranging from $1,000 to as high as $10,000. Usually the plans with higher deductibles have lower monthly premiums. Make sure that your high deductible health plan is eligible for HSA as not all plans are. Otherwise, you cannot open a Health Savings Account. You can contribute money to the Health Savings Account minus the deductible amount of your health plan. If you are more than 55 years old, your contribution to the Health Savings Account may be more than $500, if you’re single, and more than $1,000 if you’re married. These figures may increase to $100 every year. Eventually, the deductibles can reach $1,000, if you’re single, or $2,000 if you’re married or have a family. The money saved in the Health Savings Account are used to pay for your medical expenses – deductibles, co-pay amounts, drug prescriptions, eyeglasses, and other items that can be itemized as medical expense under your individual tax returns. You cannot use the money to pay for the monthly premiums of your health plan, unless you’re unemployed. If the money from your Health Savings Account is withdrawn to pay for medical expenses, then you can withdraw it tax-free. However, if you withdraw an amount that is higher than the cost of the medical expenses, then the amount is considered as income and is subject to a 10% penalty charge. You are exempted from this rule if you are 65 years old or you have a disability. If the owner of the Health Savings Account dies, then the money in the Account is added to the person’s taxable estate. Health Savings Accounts are portable. When you leave your present employment, you can take your money and Health Savings Account with you wherever you are employed next. Creating your Health Savings Account has no age limit. It is better if you sign up for one while you’re still generally healthy. You can treat it as any savings account wherein a large amount of money can be saved to protect you from high medical expenses in the future. You may even use the money as part of your income when you retire. Answer by general public - June 19, 2009 @ 5:51pm No CommentsNo comments yet. Leave a comment |
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The Health Savings Account works like that of the Internal Revenue Account or IRA. If you save money in the Health Savings Account on a regular basis, then that money accumulates over time, tax-free. You can withdraw the money to pay for your medical expenses at tax-free rates.
