So you’re considering buying a Health Savings Account plan (HSA)? That’s great. A HSA will almost always offer you the best bang for your buck, delivering the lowest monthly premium in exchange for the lowest out-of-pocket maximum. These two things, are what I consider the most important parts of your health insurance.
But what about the bank account part of the plan?
Do you have to put a certain amount of money aside each year?
How do you know how much money you will need?
What will happen to your money at the end of the year if you don’t use it?
These are all great questions and will be answered by the time you are done reading this. First, let's back up and take a look at what makes up a Health Savings Account to help better explain your options.
One of the first responses I get from people when I ask if they are familiar with a HSA plan is “is that where you put money into an account.”
While true, to be honest, that is a completely optional part of the HSA plan.
High Deductible Health Plan
The first, and primary component of a HSA is the High Deductible Health Plan (HDHP). This is the meat and potatoes, backbone or foundation of any good HSA. As long as your deductible and plan benefits meet the requirements, it is HSA eligible.
The minimum deductible for Health Savings Accounts in 2013 is $1,250 for an individual and $2,500 for a family.
The structure of the HDHP is what you are going to want to focus most of your attention on.
Health Savings Account
The term health savings account is actually used to describe the bank account associated with your HDHP. This bank account allows you a place to set aside a certain amount of money each year to cover your deductible. That money is tax deductible going in and tax free coming out.
The maximum contribution to a HSA account for 2013 is $3,250 for an individual and $6,450 for a family.
It’s also important to note that any money used for non qualified medical expenses from a HSA will be subject to a 20 percent tax penalty.
Do You Have to Put Money into Your HSA?
The short answer, no.
The reason you are going to want to put most of your attention on the HDHP itself is because that’s what you will be using the most.
There are no requirements on having to set up a HSA account or even contributing a minimum amount of money each year to the account.
The only possible requirement would be, if you did open an account, to have enough money in there to cover any fees the bank may charge to maintain the account.
Why Should You Put Money Into a HSA?
Your primary incentive to use a HSA is the tax incentives.
HSA’s are very flexible, you can fund them to the maximum contribution each year, deposit a smaller amount to fit your needs or use it on a pay as you go basis.
You can even reimburse yourself for past expenses throughout the year. That means if you bought a HDHP in February but didn’t decided to open up a HSA until May you can pay yourself back through the tax friendly account at that time.
The one thing you are going to want to avoid is overfunding the account. The money does roll over from year to year, however if you trap extra money in the account that is need for “non qualified” medical expenses you will have to pay the 20 percent tax.
The Bottom Line
You will rarely find a time where a HSA isn’t a compelling option that doesn't require you put aside any extra money. They might have slightly higher deductibles than you may be accustomed to, but remember, they are providing you with the best bang for your buck.
If you are curious how they provide that bang for your buck, you can download my free ebook below or contact me directly to find out.