Health Savings Accounts: Do they make sense for me?Submitted by Mission Financial Planning on January 17th, 2020
UPDATE: The IRS extended the 2020 tax deadline through May 17, 2021. This extension gives Americans an extra month to file their taxes and extends the deadline for contributing to your 2020 HSAs and IRAs.
Healthcare Savings Accounts (HSA) plans have been available since 2004, with few changes. Simplistically, they can be thought of like a medical IRA. You own it and control it, and unlike some other types of "use it or lose it" healthcare reimbursement accounts, the money in an HSA stays in the account until you're ready to use it. If you expect to let money accumulate in the account, many HSA providers allow the money to be invested within the account.
HSAs are attractive because the contribution is tax deductible, and when money is withdrawn for medical purposes it comes out tax-free. A wide range of expenses qualify for reimbursement from HSA accounts.
To be able to open an HSA, your health insurance plan has to qualify as a high-deductible health insurance policy that meets the eligibility requirements for HSA plans. Deadlines are similar to IRAs, with contributions due by April 15th.
You can fund your HSA at any time throughout the year. Contribution levels are capped and adjusted each year. For 2021, the Single maximum is $3,600 and the Family maximum (when more than one person is covered) is $7,200. If over age 55 then an additional $1000 “catch-up” contribution may be added each year.
HSA plans (and the associated high-deductibility insurance plans) work best when:
- You are generally healthy.
- You do not incur high insurance claims.
- You have the money to pay for some medical expenses out-of-pocket and/or to fund the savings account to take advantage of the tax benefits.
If you have questions about if a Health Savings Account is right for you book an exploratory call with Sharon to discuss your specific situation further.