Health Savings Account

[JanetRose]

My daughter just got her first job and asked about Health Savings Account. I don't know much about it - is it worth doing?

Thanks.

 

[lsyorke]

Only if she has health related costs that aren't covered by insurance.

 

[momrek06]

My daughter just got her first job and asked about Health Savings Account. I don't know much about it - is it worth doing?

Thanks.

We have one with DH's company. Yes, they are great IF you know pretty much to the penny what you spend in health care yearly. The first year we put in $500.00 more than we used and we lost that money. So, if your DD knows what she spends or even a little under, she will be fine. BUT that being said, it is awesome!!!!

 

[Kim3]

momrek06, are you sure you didn't have an FSA?

FSA- Flexible Spending Account: Used to buy health goods including OTC items like aspirin (Note: OTC option goes away in '11 due to health care reform) IRS makes this a a "use it or lose it" account. You don't pay taxes on the monies you elected to put aside in it, but you do lose it if you don't use it by the end of tax year

HRA- Health Reimbursement Account: This is an account your employer funds. They do not take money out your paycheck, but rather give you a debit card to use on health care costs. The amount in this account is not added to the income your employer pays you, so it is tax-free. Employees CANNOT elect to have their own funds added via paycheck. This account can roll over from year to year depending on your employer's set up

HSA - Health Savings Account: This is an account that is tax free and the monies in it never expire. You also can move it with you if you change jobs. Money is taken out of your paycheck to fund this account. It's a great way to put aside money if you have a current high cost condition OR a way to plan for health care spending when you retiree.

I've worked in the benefits industry for 10 years now, so I have a little experience with these types of accounts.

Kim

 

[momrek06]

momrek06, are you sure you didn't have an FSA?

FSA- Flexible Spending Account: Used to buy health goods including OTC items like aspirin (Note: OTC option goes away in '11 due to health care reform) IRS makes this a a "use it or lose it" account. You don't pay taxes on the monies you elected to put aside in it, but you do lose it if you don't use it by the end of tax year

HRA- Health Reimbursement Account: This is an account your employer funds. They do not take money out your paycheck, but rather give you a debit card to use on health care costs. The amount in this account is not added to the income your employer pays you, so it is tax-free. Employees CANNOT elect to have their own funds added via paycheck. This account can roll over from year to year depending on your employer's set up

HSA - Health Savings Account: This is an account that is tax free and the monies in it never expire. You also can move it with you if you change jobs. Money is taken out of your paycheck to fund this account. It's a great way to put aside money if you have a current high cost condition OR a way to plan for health care spending when you retiree.

I've worked in the benefits industry for 10 years now, so I have a little experience with these types of accounts.

Kim

Kim, you 100% RIGHT ... oh, I am sorry, yes I have a FSA!

 

[golfgal]

Only if she has health related costs that aren't covered by insurance.

Sorry but this is very wrong.

A HSA is a BEAUTIFUL deal-you put the money in there tax free, it grows tax free and you can spend it tax free on qualified medical expenses. If you can put money in one and not spend it, even better as it is a nice vehicle for retirement money to pay for health insurance premiums.

It would be a nice tax deduction for her as well. I say go for it if she can and put money into the account and leave it for a rainy day or retirement.

 

[AnOtHeRdIsNeYfReAk]

So its like a regular savings account like most people have with their bank/credit union? I'm not sure I understand why this is offered through an employer when anyone can open one. Is there something I'm missing? Better interest rates maybe?? I'm curious now as I have 3 savings accounts with my credit union. One for medical/dental, one for regular savings and one for vacation-which is near empty Would I be better off opening a HSA?

 

[Kim3]

AnOtHeRdIsNeYfReAk- No, sadly not everyone can open one. You have to be enrolled in a certain type of health plan.

Once you are in this plan, you can open a HSA. The advantage is that the money you put in it is tax free. So, let's say your gross income is $42K a year and you decide to put $3000 in the HSA for furture medical expenses. That year, the IRS would only tax you on $39k in income.

Kiplinger's website has a nice explanation of HSAs an how they work:

http://www.kiplinger.com/features/archives/2004/02/hsa.html

 

[Jennabeth]

So its like a regular savings account like most people have with their bank/credit union? I'm not sure I understand why this is offered through an employer when anyone can open one. Is there something I'm missing? Better interest rates maybe?? I'm curious now as I have 3 savings accounts with my credit union. One for medical/dental, one for regular savings and one for vacation-which is near empty Would I be better off opening a HSA?

These accounts are usually offered with a high deductible health plan. My employer is offering this next year. My medical deductible will be $3000, which means I have to pay out of pocket for medical care up to $3000, then my insurance covers 100%. I will have a HSA and will use that money to pay my deductible.

 

[laurie31]

As others have explained, you can only have an HSA if you have a high deductible heath plan. The beauty of it is that you DON'T "use it or lose it." You can put the full amount allowed in there every year, and if you don't use it all, it stays. You can build tax-free savings for your medical expenses in retirement. (The money can ONLY be used for medical expenses. You have to either use the debit card associated with the account to pay the medical bills, or reimburse yourelf if you pay out of pocket).

We have a $4500 deductible, so we choose to put those bills on our own credit card, then reimburse ourselves from the HSA before the bill comes. We get the tax benefits AND the credit card rewards. This is legal, btw.

However, using the money in an HSA for anything other than medical bills is fraud, so it's not like a 401K or other savings account, where you can use the money however you like.

 

[golfgal]

Note also that not all high deductible plans are HSA qualified so just make sure the one you have IS.