The Health Savings Account
A health savings account can be the ticket to comprehensive health coverage at a price you can actually afford. How a health savings accounts works
A health savings account is not an insurance plan. It's actually a means of making coverage more affordable for people who traditionally have high health insurance costs. Here's how the health savings plan works: Rather than pay a high monthly premium for a policy with a low deductible and low co-pays, you opt for a high deductible policy (to help in the event of an emergency or major expense) and you make regular deposits into a health savings account (to cover the minor expenses).
Deposits made toward the health savings account are 100% tax-deductible, and can be used towards any out-of-pocket medical expense, like satisfying your deductible, covering office visits, etc.
And any health savings account funds you don't use will remain in the account, drawing interest on a tax-favored basis, until needed for future medical expenses or retirement.
Who qualifies for a health savings plan
Everyone with a qualified high deductible insurance plan is eligible for a tax-deductible health savings account. The benefits of a health savings account can be substantial and now not just those who are self employed or own small business's can have. one. The insurance policy and the health savings account must conform to government guidelines. (They can't be any old policy and account.)
There are financial requirements as well. The insurance policies that qualify are limited to those with an individual deductible of between $1,100 and $5500, or a family deductible of between $2,200 and $11,000. In addition, the maximum contribution is $2,850 for individuals and $5,650 for families regardless of what your deductible is. You can fully fund your HSA when you become eligible, HSA's are no longer pro-rated, but you must stay in the HSA eligible plan 12 months following the the last month of the year of the first year of eligibility or you will be subject to a 10 percent tax.
Rollovers from health FSAs and HRAs into HSAs through 2011 are now allowed. These amounts are can be over and above the amounts allowed as annual contributions. This provision is limited to one distribution with respect to each health FSA or HRA of the individual. Again, you must stay in the HSA eligible plan for 12 months following the month of the contribution or will be subject to a 10 percent tax.
A one-time transfer from a IRA to a HSA is now possible under certain guidelines. Only one transfer may be made during the lifetime of an individual.
Click here to open a HSA account.
