Why You Need a Health Savings Account If You Are Over 55
A Health Savings Account (HSA) allows you to save money tax-free for medical expenses. It's a good idea for people of all ages, including you if you're over 55. Here's why.
What is an HSA?
An HSA accompanies your high deductible insurance plan. Not only will you pay lower premiums for the high-deductible insurance, but an HSA allows you to save money tax-free for medical expenses. You'll also pay fewer taxes with an HSA since you contribute pre-tax money into it, withdraw money tax-free and don't pay taxes on the accrued interest. You can make contributions to your HSA until you're 65 and enroll in Medicare. After 65, you can continue to withdraw funds tax-free for qualified medical expenses.
How do you Qualify for an HSA?
You're eligible for an HSA if you purchase your own health insurance, are self employed or have an HSA option from your employer.
How do you use an HSA?
Money in your HSA is used for eligible medical expenses, including:
*Acupuncture
*Chiropractor care
*Dental treatments
*Diagnostic services and lab tests
*Doctor and hospital fees
*Hearing aids and batteries
*Podiatrist visits
*Prescription medications
*Psychiatrist and Psychologist visits
*Substance abuse treatment
*Vision care
If you withdraw money from an HSA for non-eligible medical expenses, you'll pay income tax on the withdrawn amount. Because you're under 65, you'll also owe a 10 percent penalty tax.
Understand the Math
To find out how much money you can save with an HSA, do the math.
Without an HSA, Adult A pays $596 a month for a health insurance policy with a $1,000 deductible. He pays 20 percent of all medical expenses until the $2,500 out-of-pocket maximum is met. In one year, he will pay $7,152 in premiums alone or $9,652 if he has medical expenses.
With an HSA, Adult B pays $349 in premiums each month and has a $5,500 deductible. Her medical expenses are paid 100 percent after she reaches her deductible. In one year, she'll pay $4,188 in premiums, and she can contribute up to $3,350 to her HSA account. If she has medical expenses, she'll pay her premium and deductible, which totals $9,688.
While both adults spend about the same amount of money for medical care, the person with an HSA also has funds set aside for her future medical care.
An HSA is a wise investment if you're over 55, especially if you're in good health and don't engage in risky behavior. Talk to your insurance agent about your needs as you learn more about why an HSA is a good fit for you.