Are you currently looking for an option to help fund your health expenses? One of the avenues growing in popularity is the use of a health savings account (HSA) in conjunction with a high deductible health plan (HDHP). This is due to an increasing number of employers making the switch to include the HDHP’s in their offerings. This provides the employee an affordable health option in a market with rising premium costs.
The added benefit with this type of account is that it can potentially be used as another retirement savings vehicle. In order to determine if this type of account is the best option, first you need to determine if the underlying health plan would coincide with your current health needs.
Is the High-Deductible Plan Right For YOU?
As mentioned earlier, the necessary component to utilizing an HSA is enrollment in a high-deductible health plan. This type of plan is a good option for an individual that makes infrequent visits to the doctor. With a high-deductible plan, though the monthly premium costs are lower, the plan deductible is higher than normal.
According to IRS.gov for tax year 2017, the max deductible should be no more than $6,550 for individuals and $13,100 for families for in-network services. Due to the inherently higher deductibles for an HDHP, this could prove to be costly for frequent visits to the doctor. In which case, this would diminish the use of the HSA as a potential savings tool for healthcare.
In my case, choosing to be on a high-deductible health plan was a no-brainer because I rarely go to the doctor. At this time, I am in relatively good health. I am blessed to say that, given that both my parents have had their fair share of health problems. I took the cue early on that I would have to take good care of myself due to certain predispositions.
Ultimately, the HSA and high-deductible health plan combination yielded a couple of benefits for me.
- The monthly costs would be lower than other health plans. I use the monthly savings to help fund my HSA.
- An HSA provided me an additional investment vehicle in order to fund my future health and/or retirement expenses. I plan to discuss this in more detail in a different article – stay tuned!
Health Savings Account Advantages
Here are additional benefits of an HSA to consider:
- The balance at the end of the year rolls over (and over and over..).
- The contributed funds can be invested.
- There are tax advantages. Contributions are tax-deductible, the growth is tax-deferred, and withdrawals for qualified medical expenses are tax-exempt.
- The balance can be used for qualified medical expenses (for life).
- If you leave the company, you can take your account with you. This was a plus for me since I did not have plans to stay at that particular employer.
- Upon death, the account can be transferred to a beneficiary for them to use for qualified medical expenses.
- Employers can contribute to your HSA if they choose. Free money? Yes, please!
The addition of the HSA as a savings vehicle for my healthcare currently and into retirement is a great bonus. I can choose to pay qualified medical expenses out-of-pocket now and have the balance grow into retirement.
The Allowable Contribution Limits
Please note that there are IRS limits for individuals and families. For 2017, the allowable contributions for individuals and families are $3,400 and $6,750, respectively. Each year the contributions may change slightly, so it is advisable to check your resources prior to making contributions for the year.
Keep in mind, that if your employer is contributing to your HSA, then it will count towards your annual limit. For instance, let’s say ABC Corporation contributes $1,000 to your HSA in 2017. As an individual on a high-deductible health plan, you will only be able to make additional contributions of $2,400 to the plan for the calendar year 2017, for a total contribution of $3,400.
Consider Your Options
The high-deductible health insurance plan and HSA are right for me, but please understand that it may not be the best option for you. Consult with your health insurance provider for more details.
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Thank you for reading! Are you currently utilizing a HSA with your high-deductible plan?
Original photo credit: Pixabay
Last edited 11/6/2017