Tag: tax free

Health Savings Accounts, which are different and more flexible —ironically— than Flexible Spending Accounts.

In order to open a Health Savings Account, first you must open A High Deductible Health Plan or “HDHP.” That’s a specific type of health insurance plan created by Congress.  For 2017, a High Deductible Health Plan must have a deductible of at least $1300 for individuals and $2600 for families.  The deductible is the amount you have to pay before the insurance benefits kick in.

High Deductible Health Plans by themselves are not that exciting.  But Health Savings Accounts ARE because they can help you save money.  Health Savings Accounts, or HSAs, are accounts in which you can save money for healthcare costs tax free. 

They’re similar to a Flexible Spending Account —only better.  In the old, obnoxious Flexible Spending Accounts you have to guess how much you will spend on healthcare each year and set aside that amount. If you guess wrong, and don’t spend all the money, you forfeit the balance of your account. Oops! You lose!  And little known fact: your EMPLOYER gets to keep the cash.

By contrast, the new Health Savings Accounts are so much saner. Here’s why I like them:

• HSAs roll over from year to year instead of being forfeited.
• They are portable, so you can take them with you to another job.
• Employers typically contribute to them.
• HSAs earn interest or can be invested (carefully!) in the market
• And You can cash in your HSA for any use after age 65

HSAs paired with High Deductible Health Plans are better for people who are physically and financially healthy, so that they’re either unlikely to have to pay the high deductible at all, or it won’t hurt them financially if they do.  Some employers offer HSAs, many of the health plans on the Obamacare exchanges are combos of High Deductible Health Plans and Health Savings Accounts and independent insurance agents also sell them.

An HSA saves you money because it reduces your taxable income.   For 2017, individuals are allowed to sock away up to $3,400 in a health savings account and families can save up to $6,750.  How much can you save?  Let’s say you make $100,000 a year and contribute the family maximum to an HSA.  That will save you $1,688 on your taxes!