Since the beginning of 2004, taxpayers have had a new tax savings tool called Health Savings Accounts, or HSAs. And these accounts are worth looking at seriously.
In a nutshell, HSAs work like this: You buy a special type of health insurance called a High Deductible Health Plan. (This special HSA-compatible insurance is also known by the acronym HDHP.) Then, you contribute money—for a family this would be $6,550 annually in 2014—to a special health savings account.
The benefit in all this is that you get a tax deduction for the money you contribute to the health savings account, but as long you spend the money in the account for eligible healthcare expenses, you aren’t taxed when you withdraw the money. In effect, the HSA makes all or most of your uncovered healthcare expenses fully deductible. (This is a big deal because for most people, healthcare expenses are not easily deductible!)
Just to put the value of an HSA into perspective, a typical family can save from $600 to as much as $2,000 annually in income taxes by using one of these accounts. And the accounts aren’t difficult to set up. Essentially, you do just two things. (1) Get medical insurance that qualifies as an HDHP, and (2) open a health savings account with a bank that offers HSAs. Note, too, that HDHP insurance may save people money, too, because you end up buying less insurance.
But before you rush out to get a new HSA, let us also share two caveats: First, obviously, you never want to cancel one insurance policy until you’re sure you have a replacement policy. Second, you do need to be careful about the fees associated with the health savings account, so shop around.
If you’re interested in learning more about how HSAs can save you taxes, feel free to contact us.
Leave a Reply