If you have a High Deductible Health Plan (HDHP) then a Health Savings Account (HSA) could be a fantastic, tax savings tool to incorporate into your health care plan. To be considered an HDHP, two conditions must be met. The first is that your annual deductible exceeds $1350 for a sole participant and $2700 for a family. Secondly, is that the annual out of pocket maximum does not exceed $6650 for an individual and $13,300 for a family plan.
Think of it Just Like an IRA
Once the account is set up, you can contribute up to $3450 per individual and $6900 per family to a pre-tax account that will grow as tax-deferred. Think of it just like an IRA, except one that allows you use to use the funds for health care costs not covered by an HDHP. The Health Savings Account gives you control, it empowers you to regulate your own health care expenses.
Distributions are not taxable
The beauty of the HSA is that your contributions are not subject to federal tax. California does tax the account, but it is a much better tax result than relying on deducting your medical expenses as itemized deductions. When used for qualified medical costs, your distributions are not taxable. Any money remaining continues to soak up deferral until the age of 65 when they are then subject to ordinary tax. Once you sign up for Medicare Part A at the age of 65, you can withdraw on the account without any tax.
Numerous Benefits Not to Be Ignored
The true beauty of an HSA is that contributions are tax-deductible. When you need to withdraw from the account for qualified medical costs, your expenses are also tax-free, and as long as the savings account is left to grow, the growth is not taxable. They perform better than a Flexible Savings Account and they can be used when needed. In other words, the benefits of an HSA are numerous, abundant, and not to be ignored.