An HSA can provide tax advantages.
A health savings account (HSA) is a plan to save money for medical needs by providing tax advantages that enable you to reduce your taxable income. You can save as much as 40 percent on your health care expenses with an HSA because of the tax benefit. Exact savings depends on your tax bracket. Other financial benefits from expenditure allowances in an HSA include tax-free interest on account dollars and tax-free earnings on investments. To use an HSA, you must be enrolled in a High Deductible Health Plan (HDHP). An HDHP is a form of catastrophic medical insurance that has high deductible amounts. If you consider opening an HSA, it is important to understand expenditure allowances so you aren't penalized for money you used that was not in compliance with HSA guidelines.
Available Funds
Starting in 2012, you are allowed to put up to $3,100 into your account if you want single coverage and $6,250 into your account for family coverage. Unlike other health-related savings plans, at the end of each year, you do not lose the amount you put into the HSA. The annual contribution is carried over continuously. The balance in the account can continue to increase until you need it for other uses, such as retirement or funding a child's college education.
Allowance Spending Timing
You are not required to take advantage of allowances by a certain time as far as reimbursing yourself for medical expenditures. The only requirement is that you keep accurate records of your expenses. Allowances are not available for expenses already reimbursed by a health care plan.
Health Care Expense Examples
HSA funds can be used for such expenses as doctor or dentist visits or doctor-approved treatments -- even including such areas as acupuncture, chiropractic treatments, nursing home care and stop-smoking programs. Among the few things HSA funds cannot be used for are over-the-counter drugs not prescribed by a doctor or premiums for most types of health insurance. HSA funds used for non-eligible -- non-medical -- expenses result in a penalty, which is 20 percent in 2011.
Long-Term Care Insurance
You are allowed to pay for long-term health care insurance from your HSA as long as the insurance can be renewed and does not provide a cash surrender value. A cash surrender value is the amount of money that the long-term health care insurance pays the insured if the policy is voluntarily terminated before its maturity or if the insured event occurs.
Tags: health care, cash surrender, cash surrender value, expenditure allowances, funds used, health care insurance
