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Health Savings Account Plans

June 15, 2020

Let's say you're relatively young, healthy and are interested in saving taxes. A health savings account could be just what the doctor ordered to reduce current tax as well setting aside money for a future need. A health savings account is a tax-advantaged account that's paired with a high-deductible health plan. You cannot contribute to an HSA (Health Savings Account) unless you are enrolled in a HDHP (High Deductible Health Plan).

Before opening an HSA, you must first enroll in a high deductible health plan, either on your own or through your employer. An HSA only pays benefits after you've satisfied a high annual deductible. (Some preventative care, such as routine physicals, may be covered without being subject to the deductible). For 2020, the annual deductible for an HSA-qualified HDHP must be at least $1,400 for individual coverage and $2,800 for family coverage. However, your deductible may be higher, depending on the plan.

Once you've satisfied your deductible, the HDHP will provide comprehensive coverage for your medical expenses (though there may be some cost sharing until you reach your plan's annual out-of-pocket limit). A qualifying HDHP must limit annual out-of-pocket expenses (including the deductible) to no more than $6,900 for individual coverage and $13,800 for family coverage for 2020. Once this limit is reached, the HDHP will cover 100% of your costs, as outlined in your policy.

Because you're responsible for greater portion of your health-care costs, you'll usually pay a much lower premium for an HDHP than for traditional health insurance, allowing you to contribute the savings to your HSA. Your employer may also contribute to your HSA, or pay part of your HDHP premium.

The beauty of health savings accounts is they're triple tax free. You get a tax deduction for the deposit which is up to $3,550 for individual coverage and $7,100 for family coverage including Any company contribution. Then it is sheltered as it grows and  is distributed tax free for qualified medical expenses. Most people will incur costs and then reimburse themselves immediately. My preference is to let the money grow overtime therefore building up earnings that will be distributed tax free. Fidelity estimates a couple retiring today will need $285,000. Medicare and long term care premiums are eligible medical expenses. IRS Publication 502 contains a list of allowable expenses. (link in video)



I do keep receipts in a folder so if I did need access to cash, I could do a reimbursement at any point for past expenses. There's no "use it or lose it" Provision like a flexible spending account.


IRS Publication 502 contains a list of allowable expenses. 

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