If you're on a high-deductible health plan and want to get a possible tax break, you should consider opening a Health Savings Account (HSA). It allows you to make tax-deductible contributions, and the earnings in your account grow tax-free. As long as your distributions are for qualified medical expenses, you will not pay any penalties or taxes. Remember, though, always consult your tax advisor before opening this account.
Am I Eligible?
To make contributions to a HSA, the account owner must meet all of the following requirements:
- Must be covered under a High Deductible Health Plan (HDHP)
- Is not covered by any other health plan that is not a HDHP
- Is not enrolled in Medicare
- Is not actively using a Flexible Spending Account (FSA)
- Cannot be claimed as a dependent on another person's tax return
- Is less than 65 years old. Individuals may not make regular contributions to a HSA in or after the tax year they reach age 65.
What are Qualified Medical Expenses?
- Actual medical expenses, including doctor visits, prescriptions, transportation to get medical and dental care.
- Long-term care insurance
- Healthcare coverage when unemployed
- Certain continuation-of-benefit healthcare coverage
Need money to start your HSA? Do you have an IRA? You can make a one-time transfer from an IRA (Individual Retirement Account) to a HSA, with no penalties or taxes.
Talk to your insurance agent and ask them if it makes sense for you to be in a high deductible health plan. If it does, it might be to your advantage to open a HSA. You can open it with the minimum balance required and make monthly contributions.
Go here for more information including contribution limits and what qualifies as a HDHP.
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