Advantages And Disadvantages Of A Health Savings Account
Advantages Of A Health Savings Account
- Tax savings.
- Money isn't taxed on a federal level going in. If properly used, it also isn't taxed coming out.
- Even in a 10% tax bracket, a $1,000 contribution will save you $100 in federal income tax. In the top tax bracket, a $5,000 contribution will save $1,750. Plus, if your HSA is part of a group plan, you will not have to pay 7.65% Social Security and Medicare tax. In most states, you do not pay income tax either. As an example: Kate and Tom faced the prospect of paying $900 a month ($900 x 12 = $10,800 per year) to stay on her old employer's health insurance. With an HSA, Kate and Tom purchased a policy with a deductible of $5,250. and opened an HSA. The policy cost $312 a month. ($312 x 12= $3,744). They saved $7,056 ($10,800 - $3,744) in premiums which more than covered the deductible. Plus they had the benefit of not paying federal and Social Security taxes. Plus the money can be withdrawn tax-free to pay medical bills.
- Most states follow federal rules and give tax breaks for HSAs. The following six states do not: Alabama, California, Maine, New Jersey, Pennsylvania and Wisconsin.
- Extra tax free income.
- Your employer can contribute pretax money to your account which is not taxed to you.
- Year to year rollovers.
- If there is any money left at the end of the year, it can be rolled over from year to year. This creates a potential fund of money for future medical expenses, or for retirement.
- There are no income limits for HSAs.
- You can keep an HSA even if you change jobs or insurance companies.
- If you are unemployed or laid off and collect State or Federal unemployment insurance, then you can use funds from your HSA to pay for your health insurance premiums and for your routine health expenses tax free.
It is generally difficult to find out the cost and quality of various health care providers, tests and treatments so it is difficult to maximize the value of money in an HSA.
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