A Health Savings Account is a savings account set up to be used for medical expenses and nothing else. Funds directed to the HSA are pretax dollars, thus reducing taxable income, and HSA’s offer interest on the balance. The medical expenses and HSA can be used for include optical, insurance deductions, dental and some over-the-counter medications.
HSA’s work very efficiently with high deductible health insurance policies. Your pay an extremely low premium for a very high deductible plan and use your Health Savings Account to pay for the Deductible. Typically, the savings in annual premiums will outweigh the cost of one deductible. The minimum deductible amount required to qualify as a high deductible health plan is $1,250.00 for an Individual or $2,500.00 for a Family.
Unlike a Flexible Spending Plan offered by an Employer, any money put into a Health Savings Account that is not used by the end of the year remains in the account. Money in the HSA also gains tax deferred interest during the period it is there. The maximum you can contribute to a Health Savings Account is $3,250.00 for an Individual and $6,450.00 for a Family. In 2014, these amounts go up $50 and $100 respectively.
If you don’t use your health coverage often, and saving $300 a month, but having a $3,000 Deductible sounds good to you… This is your plan!