Health savings accounts are designed to cover medical expenses that your insurance does not cover. Some accounts require you to have insurance while others do not. The money placed in your HSA by you or your employer is deposited before taxes. Some accounts earn interest while your money sits waiting for you to need it. There are a few things you need to know when deciding if a health savings plan is right for you.
How it Works
The money is deposited into your account by either yourself or your employer. The money sits in the account as it would in a bank account only tax free and, if interest-bearing, earning a higher interest rate. When you need to use the money for a prescription or doctor’s visit you may use a debit card or pay it out of pocket and submit the receipt for reimbursement. There are many factors to look at when selecting a plan such as interest and ease-of-access to the money.
Who is Eligible?
A health savings account is available to those under the age of 65 with high-deductible insurance plans such as COBRA and self-employed insurance policies. If you are married your spouse either has to have a high-deductible insurance plan or no other insurance outside of your plan. Having vision or dental coverage will not disqualify you from opening an account. You can open an account on your own through most financial institutions or your employer can offer an account to you.
What You Can Use It For
The standard expenses you will use a health savings account plan for can include physician co-payments, prescriptions and certain over-the-counter medications. Some plans require a written prescription for over-the-counter medications to be allowable expenses and many doctors are willing to write them for you. HSA accounts can also be used to pay for medical expenses such as oxygen, glasses, prosthetics and addiction treatments as well as many other things. Before setting up an HSA account it is best to verify covered costs to make an educated decision.
Do You Lose the Money?
HSA accounts not only are tax-free and sometimes interest bearing, you also keep your money year after year. The IRS limits the amount you can invest in your HSA but whatever is unspent at the end of the year will stay in the account. You can withdraw the money for non-medical expenses but there are rules for doing this. If you withdraw funds before the age of 65 you will have to pay taxes on the money plus a 10 percent penalty. If you are over the age of 65 when you withdraw funds, you have to pay taxes but no penalty.
What Happens if You Die?
Once you open an HSA account and contribute money to it, that money will stay in the account forever. If you die, the account will become your surviving spouse’s account if they are named as a beneficiary. If there is no surviving spouse or they are not listed as a beneficiary, the money will cease to be an HSA account and will become part of the gross income of your estate.
About the Author: Victoria Heckstall loves informing others about health savings account plan.