A health savings account (HSA) helps pay some current medical bills while earning money for future health needs. The initial investment must reach deductible requirements but, after that, the money grows tax-free.
The qualified plans were established to help people pay off medical expenses, explains HSACenter, sponsored by Golden Rule Insurance Company and UnitedHealthcare Life Insurance Company. The savings accounts have high minimum deductibles, which are $1,300 for individuals and $2,600 for families in 2016, but they cost less than other health insurance plans.
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Here are six ways to take advantage of a Health Savings Account:
1. Tax-deductible contributions — The accounts are similar to IRA contributions to help offset current taxes.
2. Money accumulates interest — After the deductible is paid off, the remaining money grows for healthcare costs, including payments for dental and vision. The money rolls over each year at the end of the year to remain in the account, the Mayo Clinic notes.
3. Individual management — Participants control how the money in the account is spent. They can shop around for the best medical care and costs.
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4. Employer contributions — Employers may contribute to an employee’s HSA, and the account is still owned by the employee, who can keep the plan even after changing jobs. Contributions can also be made through payroll deduction on a pre-tax basis, according to U.S. News.
5. Future investment — The savings accounts are attractive for people who are generally healthy and don’t expect expensive procedures within the year. HSAs also have an advantage for retirees who can reduce medical costs during retirement.
6. Withdrawals are tax-free — Money taken out must be used for qualified medical expenses, which cover most medical services, including diagnostic tests, prescriptions, and even such procedures as acupuncture or care for substance abuse, U.S. News reports.
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