You've survived another holiday season. All the gifts are opened, the eggnog is gone and you're left with thank-you notes to write, a few extra pounds to burn off, and a checkbook to balance. But if you want to start off the new year smart, here's a tip to help out with your health and your finances: Take a look at the new Health Savings Accounts (HSAs). Like a hidden present lingering under the tree, HSAs are the federal government's gift to you this year.
HSAs were introduced to help you maximize your savings on health insurance while providing you with a valuable tax break. An HSA health insurance program has two parts: a high-deductible health insurance plan, and a tax-favored savings account. For an individual, an HSA-eligible health insurance plan must have an annual deductible of at least $1,000 —which means you'll have to pay the first $1,000 of medical expenses before your health coverage kicks in. This may sound like a lot of money, until you consider the cost of emergency or hospital services. Your health plan will still provide meaningful protection in case of an injury or hospitalization, and many high-deductible health plans also include coverage for things like annual exams and preventive care. The selling point here is that higher-deductible health insurance plans typically have lower monthly premiums. In fact, with a deductible of at least $1,000, you may be able to cut your monthly insurance premium in half, compared to many health plans with lower or no deductibles. And, if you have a healthy and active lifestyle and rarely need medical attention, you'll just have good, affordable health insurance!
Accumulate savings for the future, tax-free.
The second part of an HSA program is an IRA-style savings account that allows you to reduce your taxable income by building savings. January is really the best time to start an HSA savings account because you'll have the entire year to build up your savings. You can deposit funds up to the total of your health plan's annual deductible into the HSA-account each year. So, within certain regulatory limits, the higher your health plan's deductible, the more you can tuck away tax-free.
This means that if you make $40,000 a year and you put $2,000 in your HSA, you'll only pay taxes on $38,000. What happens to that $2,000? Like an IRA, the HSA is meant to encourage you to save for retirement. Funds placed into your HSA can be invested to earn tax-free income and the balance will roll over from year to year until retirement age. But, unlike an IRA, you can use your HSA funds to cover medical expenses without penalty. The funds in the account may be used to cover any qualifying medical expense, including over-the-counter drugs and eyeglasses, as well as co-payments and any medical costs incurred before your annual deductible is met.
Another thank-you note to write.
Learn more about HSAs today. You can do all your HSA research online. You can even buy an HSA-eligible health insurance plan and HSA savings account through a licensed online health insurance broker. And after you've sent Aunt Mary a thank-you card for the velour shirt, you can thank Uncle Sam for the tax break you'll enjoy with your new HSA health insurance program.
Health Savings Accounts. Official U.S. Treasury Department website.
You can shop for a Health Savings Account online at e-Insure Services!