Health insurance plans can be complicated to figure out. With all the different options, it can be difficult to decide which one is best for you. One thing to consider above all is whether or not you want a Health Savings Account. A Health Savings Account is a huge deal in the health insurance industry. This article takes a look at what a Health Savings Account is as well as the benefits and drawbacks.
What Is A Health Savings Account?
A Health Savings Account (HSA) is a savings account designated for eligible medical expenses. It offers several tax advantages. You must have a high-deductible health insurance plan (HDHP) in order to qualify for an HSA. An HDHP is defined as a policy with an annual deductible of at least $1,300 for an individual and $2,600 for a family in 2017. Once you have an HDHP, you can set up an HSA and begin making contributions either with after-tax dollars on your own or with pre-tax dollars through your employer.
Benefits Of A Health Savings Account
There are three main benefits of an HSA:
- Contributions are tax deductible
- Earnings grow tax-free
- Distributions for eligible medical expenses are untaxed
The first benefit of an HSA is in regards to your contributions. When you make contributions to your HSA from your bank account with after-tax money, those contributions are tax deductible. This means you can claim those contributions on your tax return to save money. In 2017, the contribution limits for an HSA are $3,400 for an individual and $6,750 for a family. Some employers allow employees to contribute to their HSAs with pre-tax money through payroll deductions. If you contribute to your HSA with pre-tax dollars, you won’t be able to claim the contributions on your tax return. But you’ll still experience tax savings because the contributions reduce your taxable income throughout the year. Some employers even contribute money to their employees’ HSAs as an additional perk.