Health Savings Accounts Help You Save Money

If you have a high-deductible health plan (HDHP), you might also want to have a health savings account (HSA). This is an investment account that grows tax-free over the years. You put money in the account before you have to pay any taxes on it. You don't pay a tax when you spend it, either, as long as you spend HSA money on qualified health expenses -- health care or products on an IRS-approved list.

HSAs must be paired with a qualified HDHP.

What You Can Use the Savings For

You can use the money deposited in a health savings account for many different medical goods and services, including:

You can also put aside money for dental work or vision care expenses.

Some plans allow you to use it for over-the-counter medicines if your doctor writes a prescription for them.

A. If you have insurance for your family, you can put in up to $6,750 for a family. If you're over age 55, you can put in $1,000 more each year. Your employer can contribute to an HSA account for you. However, your combined contributions can't exceed the maximum amount allowed in a given year.

Requirements: You can only get an HSA if you're enrolled in an HDHP. For 2017, the plan must have at least a deductible of $1,300 a year for one person and $2,600 for a family.

Amount you can save a year: In 2017, you can put up to $3,400 if you're single in your HSA. If you have insurance for your family, you can put in up to $6,750 for a family. If you're over age 55, you can put in $1,000 more each year. Your employer can contribute to an HSA account for you. However, your combined contributions can't exceed the maximum amount allowed in a given year.

Benefits: You don't have to spend the money you deposit into an HSA the same year it was deposited. It carries over from year to year, and the money grows tax-free.

Like a 401k account, you can take your HSA with you if you change jobs.

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You can have an HSA and a dependent care flexible spending account (FSA). But you can't put money in an HSA if you use your FSA account to pay for medical expenses.

Warnings: You need to report your HSA on your federal tax return. However, you can claim the money you’ve deposited into the account as a tax deduction and subtract it from your gross income. If you use it for anything except medical expenses, you will have to pay tax on it, plus a 20% penalty.

WebMD Medical Reference Reviewed by Sarah Goodell on September 08, 2016

Sources

SOURCES:

Healthcare.gov: "Flexible Spending Account Changes."

Internal Revenue Service: "Publication 969 (2012), Health Savings Accounts and Other Tax-Favored Health Plans" and Internal Revenue Service Bulletin: 2015-20, May 18, 2015. 
 

FAIR Health, Inc.: "A New Look At Flexible Spending Plans."

Purdue University: "2013 Dependent Care Flexible Spending Account (FSA)."

Society for Human Resource Management: "IRS Sets 2017 HSA Contribution Limits." 

Congressional Research Service: "Flexible Spending Accounts."

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