Health Savings Accounts (HSA)

Health Savings Accounts (HSA) have become more commonly used by individuals and families. If you’ve never had an HSA before you may not have a clue what it can offer your family, but we’re going to explain what an HSA is in simple terms.

What Does A Health Savings Account (HSA) Include?

First off, it should be noted that you can’t purchase an HSA from any bank or insurance company. Certain banks and insurance companies have approval from the IRS to sell Health Savings Accounts and it’s important that you purchase your health plan from a company that has the approval from the IRS or else you’ll run into problems when you need to use your Health Savings Account. There are actually two accounts that are a part of an HSA and we’re going to explain both of them to you right now.

The 1st part is a PPO health plan (Qualified High Deductible Health Insurance Plan) that you pay. After the deductible / Co-Insurance has been met, all covered expenses are paid.

The 2nd part of an HSA is a savings account, which is where HSA account holders will be able to deposit money. All of the money that you deposit into the savings account each month is tax deductible, which means when you do taxes at the end of the year you can take off however much money you’ve contributed to the savings account in your HSA. Interest earned in your HSA is tax deferred. Also, you may withdraw money tax free from your HSA to pay for qualified medical expenses. (Please see your tax professional for annual contribution limits, premium deductibility, tax-free qualified medical expenses, etc. and any other tax questions concerning HSA’s , we are not qualified to give any type of tax advice or information).

Who Can Register For A Health Savings Account?

Almost everyone can register for an HSA as long as you pay taxes and there are plenty of benefits that we’ve touched on in this article. For example, you save a lot of money on tax by using an HSA and you also get better health coverage for your family. You can choose where to be treated and by what doctor when you have an HSA and there are plenty of other benefits that your family would enjoy from a Health Savings Account. The higher the tax bracket you’re in, the more valuable an HSA becomes, as you save more in tax-deductible contributions into the savings account portion of the HSA.

Have You Had It With Traditional Insurance?

Health Savings Accounts are a great alternative for Americans who are fed up with high priced traditional health insurance.

So How Do Heath Savings Accounts Actually Work?

Using HSA’s are easier than you think. You simply deposit money into your Health Savings Accounts which is tax deductible and withdraw those funds TAX FREE to pay for qualified medical expenses that your plan doesn’t cover. Any unspent balances are carried forward and continue to grow tax deferred!

Free Health Insurance? Well It Depends

Take a family, self-employed husband and wife in their mid 30′s, healthy non-smokers, with 2 kids and in a top income tax level.

They purchase a $10,000 “shared” family deductible (not per person) qualified plan with ZERO – coinsurance, hypothetically costing $280 month.

They deposit $6,150 into their HSA (the maximum allowable contribution for 2010).

Bottom Line Of Health Savings Accounts

Being self employed, they deduct $3,360 in health insurance premiums for 2010 ($280 X 12), and , in a 36% tax bracket (33% fed + 3% state of IL). Realize a tax savings of $1,210.

The $6,150 HSA contribution generates an additional $2,214 in tax savings ($6,150 X .36).

The $3,424 in total tax savings exceeds the $3,360 in total annual health insurance premiums by $64. This makes their net monthly cost minus 5 dollars.

** All the above is for illustrative purposes only, for exact rules, guidelines, cost, etc. please see your CPA or Accountant.**