Every day, it seems like it’s getting harder and harder to actually take care of your family’s day to day expenses. If there’s one category that definitely stresses a household budget, it would definitely have to be medical expenses. Even if you have insurance, that doesn’t mean that your problems with medical expenses are over. These days, the deductible on your health insurance is probably so high that you hardly use it. Does that mean the medical expenses stop piling up? Of course not. So what can you really do?
Well, there is one thing you can think about: health savings accounts (HSAs). An HSA is an account that gives taxpayers a bit of relief from being taxed on every dime they spend, especially if those dimes in question are for medical care. Now, this sounds a bit like a flexible spending account (FSA), but there are some differences. You see, with an HSA, you have the ability to set aside money, but the money rolls over from year to year. If you have an FSA, you must spend all of the money that you set aside in the account for that fiscal year — or you lose it.
In order to have an HSA, you must have a high deductible health plan (HDHP). Like most things set by the government, there are rules for this type of plan. In order to be considered “high deductible”, you must be paying at least $1,200 for yourself and $2,400 for yourself + the rest of your family. That’s a pretty high deductible, so yes; it’s safe to say that if you’re paying that much you could use some relief.
What is really nice about HSAs is that the money you deposit is actually exempt from federal tax liability. This means that you can focus completely on taking care of your family’s health expenses without worrying about paying tax on the money. This essentially gives you a boost in buying power, but it’s not without restrictions.
You must make sure that you are paying for qualified medical expenses through this account. These are things like braces, birth control pills, durable medical equipment, and other things of that nature. It’s just a matter of figuring out what your family needs, and getting them those supplies. You will need to make sure that you save the receipts so that if you are audited for any reason, you can prove that you really did spend the money on a qualified medical expense. If you had to tap the account for things that don’t qualify, it would be treated the same way as if you had taken out money from an IRA — there would be penalties that would have to be paid — yikes! Better to focus on qualified medical expenses, then.
Overall, it’s definitely a good time to start thinking about contributing to a health savings account. The money that you shield from federal income taxes is definitely a good thing, because it frees up more money to give your family the high quality of life that they deserve!