As we begin to think about the upcoming tax deadline, we also start to think about ways we can save money and especially ways to take advantage of tax exemptions.
One thing you might not be taking full advantage of are tax exemptions and other opportunities to save on health care expenses.
Health care is a pricey, but necessary expense. Health insurance premiums, deductibles, co-pays, appointments, medicine, you name it, it all adds up.
One way to potentially save on healthcare and get some tax savings is by opening a health savings account. Here are some advantage of having a health savings account.
It’s Basically Tax-free
Money to fund a health savings account is taken out of your paycheck before taxes. When the money is removed from the account for medical purposes, it cannot be taxed. Even if you contribute money to it after your take-home pay, those contributions can be deducted from the gross income on your tax return. The bottom line is that using a health savings account means paying less tax.
It’s Your Money
A health savings account stays with you and is made up of your own monetary contributions. Your employer can contribute to it, and some employers do, but they do not own it. If you leave the company you take your health savings account with you.
There is no use it or lose it mentality like there is with a Flexible Spending Account (FSA). If you don’t use all of the money in a health savings account for the year, it rolls over to the next year. Depending on the type of savings account it may even generate interest, which is another benefit for you.
If you remove money from your health savings account to pay for a medical bill, the money is not taxable. You can withdraw funds from your account for things other than medical expenses, but if you are under 65 years old and withdraw money for non-medical purposes, you are charged a 20 percent tax fee. If you are older than 65 you can withdraw it penalty free. Because of the fee, it’s best not to withdraw money from this account for non-medical purposes.
The money in your health savings account can also be used toward expenses for your spouse, children and dependents. This account is available for your use and for the use of your family. If you child needs medicine, you can take money out of your health savings account and use it.
A health savings account helps with budgeting for medical expenses. It’s in a separate account instead of included in a lump sum with money for other things in your monthly budget. This makes it easy to save up for costly medical procedures you may not need right away, or to have as a medical emergency fund of sorts.
Keep in mind, using a health savings account only works with a high-deductible health plan. You also have to pay your full deductible out-of-pocket before you can take money out of your health savings account for a bill. Health savings accounts can save you money and lessen your taxes. But make sure you know if it’s the right choice for you. A high deductible insurance plan may not be a good idea for your family’s financial or medical situation.
Do you use a health savings account? What are other benefits?
Photo courtesy of: Day Donaldson
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