Health Savings Accounts for Beginners

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If you're not taking advantage of HSAs because you find them confusing, you're missing out on big savings. Here are the quick, basic steps to using them.

The following post comes from Tomer Shoval at partner site Mintlife.

High-deductible health plans paired with health savings accounts (HSAs) are one of the fastest-growing types of plans.

Are you just opening an HSA or still trying to figure out how yours works? Many people find the idea of managing not just a health plan, but now a health plan with a linked savings account, a little daunting. How much should you save? What can you spend the money on?

An HSA doesn’t have to complicate your life. If you get behind a few simple tips, you could be on your way to big savings…

Open your HSA right away

Don’t wait until you have medical expenses. Any expenses that you incur before you open the account won’t qualify for reimbursement.

Max it out first

In general, you can take advantage of the full tax benefits of an HSA by contributing the maximum allowed – within reason of your budget, of course. HSAs have the best tax benefits compared to IRAs or 401(k)’s.

You never pay taxes for contributions, interest, or distributions, so put the maximum contribution in your HSA first. The exception is if your employer matches 401(k) contributions. Then it’s best to put your money in the 401(k) up to the matched amount.

Spend on yourself, your spouse, and your dependents

If you have family health insurance, you can pay for your spouse’s medical expenses with your HSA – even if your spouse doesn’t share the HSA.

Get your medical supplies

Check out what purchases you already make that qualify as HSA expenses. You can use your HSA on items such as bandages, crutches, contacts and contact solution, or breast pumps and lactation supplies.

Pay for premiums

In general, you can’t use HSA funds on health insurance premiums, but there are some exceptions:

  • COBRA benefits
  • Medicare premiums
  • Insurance premiums after age 65
  • Long-term care insurance

Don’t spend it at all

If you have the available funds, you might consider paying your medical bills with non-HSA money. Sounds counterintuitive, right? Didn’t you save that money just so you could use it on health care?

While this is the purpose of an HSA, you also have the option to just let the money grow. HSA funds grow tax-deferred, so you won’t pay any tax ever unless you use the funds to pay for non-medical expenses (at least until age 65).

Stacy Johnson

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