Employers offer various health care plans to employees, one of which is a High Deduction Health Plan (HDHP). It’s typically through this plan that a health savings account (HSA) is offered. These accounts allow individuals to set aside and use money specifically for current or future health care expenses.
The IRS recently published updated account limits for HSAs. In 2020, the limit will increase by fifty dollars to $3,550 for single taxpayers. For family accounts, the limit increases to $7,100. And for those over the age of 55, an additional $1,000 may be contributed per calendar year.
How Does an HSA Help?
Those who have a health savings account have one primarily for the convenience of it. Unlike a traditional savings account, many HSA plans now offer a debit card linked to the account for easy use.
A health savings account will grow tax-free, and contributions can be made pre-tax through payroll deductions. Some employers will offer to match the employee’s contribution, much like the retirement plans. There is an annual limit on contributions, as mentioned above, but having the possibility of employer contributions is invaluable to many patients. In addition, when a withdrawal is made for a qualified medical expense, that withdrawal is tax free.
How Does an HSA Hurt?
A health savings account and plan may not be the best option for you or your family because of the high deductible. It’s true that the HSA is meant to be a solution to the deductible; however, it may not be enough in the case of a significant medical condition or emergency.
You also may not want to deal with the associated paperwork. When you spend from an HSA, you need to keep the receipts to prove that your purchases were qualified medical expenses.
And finally, with a health savings account, if funds are used for nonmedical purposes before age 65, you will likely be required to pay income tax plus an additional 20%.
For more in-depth advice on your particular situation, you will want to contact a health professional or advisor.