Setting up your Health Savings Account (HSA)
If you have a high deductible health plan (HDHP), you may beeligible to create a Health Savings Account. Also known as an HSA, this is basically a special savings account thatis used to pay for medical related expenses. The primary benefit of this account is that you can make contributions(or deposits) into your account using pre-tax income. The drawback is that you can only use moneyin this account for medical-related expenses. The definition of medical related expenses is pretty broad; I have evenheard that you can buy diapers with your health savings account.
The tax savings works like this: Say you make $50,000 in one year, and youwant to contribute $2,000 to your health savings account (There are yearlycontribution limits, make sure you aren't contributing more than yourlimit). You deposit the $2,000 in youraccount and you write the whole $2,000 off on your taxes even if you haven'tspent a dime in medical related expenses that year. Your savings account grows tax free and rollsover from year to year, unlike a flexible spending account. When you need to make medical relatedexpenses (doctor bills, deductible, medicine, etc), just use the money fromyour health savings account. Piece ofcake!
After spending a couple hours reading through my health insurancedocumentation, I finally figured out how to start my health savingsaccount. The one thing that would havebeen nice is if my health insurance company told me that I wasn't setting upthe health savings account through them or with them. I could go to any financial institution thatI wanted and set the account up there. Idid a search on Google for HSA accounts and found plenty of places to signup. The one credit union I ended up withoffered the account with a visa debit card and a 5% interest rate. The only drawback is that they start charginga $1/month fee after the first year. However, all I need in the account is $240 and the interest will coverthe monthly fee the entire time.
My health savings account ended up being really easy to getstarted. I just filled out some formsonline, clicked the "I agree" button, sent them a couple bucks tostart the account off, and now everything is set up. I didn't have to do anything through my Health Insuranceto get the account set up. After settingup your health savings account, just be sure to get itemized receipts for everysingle purchase that you make with your account. Save these receipts in case you need to showthat all your purchases were health related. I will have to research exactly what expenses are included in "medicalrelated expenses" so that I can take maximum advantage of all the tax savings. It will be great knowing that I can pay forcough drops tax-free!
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Related Tags: health, savings, your, up, account, hsa, setting
Author, Tom Noonan is the creator of the Personal Financewebsite http://www.CashCreditandLoans.com/health-insurance.php. He is a small business owner and knows whatit is like to have to get your own Health Insurance.
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