Fall is a great time of the year. Local fall festivals occupy the weekends, cooler temperatures initiate spectacular colorations in leaves, and pumpkins and goblins dot the landscape. It is also the season for “open enrollment,” when many employers provide their employees with the opportunity to enroll in healthcare insurance.
Healthcare insurance can be complicated, which is why it is important to understand which coverage options work best for you and your family. One savings option for healthcare-related expenses that has become increasingly popular over the past few years is a Health Savings Account, or HSA.
What is an HSA? An HSA is a tax-favored account that allows you to save money to cover qualified medical expenses that are not paid by your healthcare insurance. They can include co-pays, coinsurance, deductibles, prescriptions, and in some cases, even your healthcare premiums.
There are many advantages to an HSA. Contributions to an HSA are tax deductible, or, if made through your employer, they may be made with pre-tax dollars. Earnings grow tax-free in an HSA, and there are no penalties or taxes to pay when an HSA is used to pay for qualified medical expenses.
Better yet, the money you contribute to an HSA is yours, so you do not need to worry about using it up by the end of the year. In fact, if you are lucky enough not to need it, the funds roll over from year to year. And here is the big bonus for contributing to an HSA: when you turn 65, in addition to paying for qualified medical expenses, any remaining funds may be used as taxable retirement income!
To contribute to an HSA, you must be covered under a high deductible health plan, not covered under any health plan, such as a spouse’s (that is not a high deductible health plan), not enrolled in Medicare and not eligible to be claimed as a dependent on anyone else’s tax returns. However, even if you no longer meet the criteria to contribute to an HSA, you may still use the funds in your existing HSA to pay for qualified medical expenses.
During your employer’s open enrollment period, make sure you review your healthcare insurance options carefully. Also, consider the savings opportunities available through a Health Savings Account.