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Health Savings Accounts

Health savings account, or HSA can be utilized as an extra means to save money. In some cases, health savings accounts gives an opportunity for refunding of great medical expenses. The account holders have several pros at once:

  • the contributions to this account are tax-free;
  • you can use them at any time to cover medical expenses.

Individuals and companies use this type of accounts to pay for sky-scraper healthcare expenditures. Many employers contribute to their employees’ medical savings accounts. Since this contingency savings plan has not limited in terms, it can be utilized even after retirement as an emergency reserve.

What is health savings account?

A health savings account is a tax-free savings account with a bank designed to help some group of people recover their health care costs. Opening such an account can only be a person with health insurance, which has a large amount of deducted. Many employers offer their employees to buy insurance with a high deductible and, in order to save money, combine it with an HSA account.

How does it work?

You make a pre-tax contribution to an employer-sponsored HSA and your contributions are not tax deductible. You can withdraw tax-free amounts from your account at any time for medical expenses.

The limit for the annual contribution to the HSA account in 2017 is $ 3,400 for individuals and $ 6,750 for a family. If you are over 55, you can deposit an additional $ 1,000 per year. Contributions to HSA are accepted until the last day for federal taxes.

Health savings account rules and requirements

You don’t need to obtain a permit from the IRS to open an HSA account, but there are definite rules and requirements that you need to follow. You must have high deductible health insurance, this year it is $ 1,300 for individuals and $ 2,600 for families. However, it is significant to know that not all high deductible insurances are suitable for opening an HSA.

A health savings account can be opened by people who are not dependents of other taxpayers and do not have Medicare or any other subsidiary health insurance coverage.

How to open an account?

Only suitable trustees can open a medical savings account: insurance companies, banks and IRS-approved individuals.

Many companies have a dedicated HSA administrator, but you can choose any other suitable trustee to open and manage an account for you. Experts recommend that you still use the HSA administrator of the company you work for – this way you will not miss out on valuable contributions from the employer and your requests will be considered faster.

Pros and cons

To understand if a medical savings account is right for your financial strategy, you need to understand its advantages and disadvantages.

Pros of HSA

  • You can withdraw money without taxes to pay for medical services.
  • There is no deadline for withdrawing money.
  • Most insurance companies offer a simple accounting and medical billing system.
  • If you change jobs, the HSA migration process is straightforward.
  • The HSA can be utilized as a retirement subsidiary account.
  • Many employers help their employees contribute to a health savings account.
  • The money from the HSA account can be utilized to pay for any out-of-pocket expenses, including for co-pays.


There are several disadvantages to medical billing that may put you off this idea.

  • Withdrawals for non-medical expenses incur a penalty of 20% plus taxes.
  • HSA administrators and proxies charge a fee for their services.
  • Your premiums may not cover all medical expenses.
  • HSA is suitable for you if your health insurance has a high deductible and you have significant medical costs foreseen.