Health Savings AccountHR Resource
January 15, 2013 — 2,086 views
Health Savings Accounts or HSAs, as they’re simply called, are increasing tremendously in popularity in recent times. HSAs are being invested in by both employers as well as individual employees. While employers offer it as health insurance to their employees, a good number of people are looking for their own personalized plan. HSAs are appealing to employers and employees alike for several reasons. Health Savings Accounts are similar to personal savings accounts, except for three major differences.
The Main Difference between HSAs and Personal Savings Accounts
Firstly, regardless of the manner in which the balance is invested, your earnings will not be taxable provided that the balance is allowed to grow with earnings that are subject to exemption from tax. You could also withdraw the money and meet your healthcare bills as government criteria for eligibility require you to do so if you want to avoid tax on your earnings. The funds can be spent on your children’s dental check-ups, medical massages for your spouse, an acupuncture treatment for yourself, etc.
HSA funds may be used for a variety of expenses related to healthcare. The government permits the use of funds for such health-related expenses and any money that is not spent on healthcare will continue growing tax-free, thereby increasing your savings.
The next major difference between an ordinary savings account and an HSA is that your savings can make the most of tax deductions in HSAs. If you wish to go for an individual plan, amounts up to $3050 may be deposited and tax deductions can be taken for the whole amount, without the need for itemizing deductions. The deduction is available irrespective of whether or not the funds are used for healthcare services.
The method of investing the balance is the third major factor that differentiates ordinary savings accounts from HSAs. Stock, bonds, and mutual funds may be purchased with HSAs, or the entire HSA may be kept in savings accounts where interest is earned.
The Working of HSAs
HSAs can be opened by any individual who has a qualified HDHP (High Deductible Health Plan). Deductibles will not be available on services associated with preventive care, such as high BP checks, vaccinations, and annual medical checkups. If you’re seeking other forms of health-related services not covered by HSAs, you may simply use the funds from the account and pay for any healthcare service you like to attain. Experts recommend beginners to start with deductibles as this will help in building your HSA. Lower premiums and higher deductibles will be a common feature once you’ve successfully created backup funds.
While HSAs offer benefits and help you save enough money for your retirement, it is crucial to use them wisely. HSA balances are carried forward to the next year at the end of each. Although this money cannot be lost, HSAs cannot be spent on anything besides health care as this will see you inflicted with a penalty of twenty per cent of the amount withdrawn. In addition, the withdrawal will also require you to pay taxes.