Health Savings Account
What are Health Savings Accounts?
A health savings account is a federal tax incentive account for planning longterm medical care costs and are available in the United States. HSA accounts are meant for individuals who are enrolled in high-deductible health plans, as a way to supplement having limited coverage with lower premiums. Health savings account were first introduced when president George Bush signed Medicare Perscription Drug, Improvement, and Modernization Act in 2003. HSA accounts have slowly risen in popularity since 2003, and the majority of account owners are under the age of 40.
The rise in popularity is also attributed to The Affordable Care Act which required employers with more than 50 employees to offer health insurance to their employees. This forced employers to cut down on employees or employee hours to absorb the costs of mandated health care. Part-time employees turned to alternative health care accounts like health savings accounts that allowed them to plan for future expenses. However medical savings accounts and health insurance accounts are both different. MSA accounts are limited to 50 or fewer employees, and an HSA account is not limited to the number of employees.
Who qualifies for an HSA?
As stated above health savings accounts are federal tax incentive accounts so you must be a tax paying citizen in the United States. A few other qualifications for a health savings account are the following:-coverage under a high-ductible health plan, no other medical coverage allowed-no medicare benefits-can’t claim as a dependent
Employers Sponsered HSA accounts
Health savings accounts can be provided through your employer, and deposits on the accounts can be made by anyone. For the most part, a portion of every paycheck will be deducted, and that will fund your account. Employer HSA deposits can be on made on both pre-tax and post-tax basis, with tax advantages for the employer with both options. HSA accounts under the cafeteria plan allow the employer to discriminate against both full-time and part-time employees deposit amounts. If employer deposits are not under the cafeteria plan, both full and part-time worker can’t be discriminated against regarding deposit amounts.
The deposits made on the accounts are subject by law to meet a certain yearly threshold. Typically employers will plan to achieve that minimum by deducting an amount from your paycheck everytime you are paid. The money that is invested in health savings accounts are set up similarly to individual retirement accounts and aren’t subject to taxation until the money is withdrawn. Employer-sponsored health savings accounts are different from individual accounts in that employers might dictate how the money is invested. Also to point out that the employer’s plan is managed by an insurance company, and invested based on risk tolerance.
Health savings accounts can also be opened by banks, credit union, and insurance companies to name a few. Individual HSA accounts can be invested in some different opportunities in real estate, stocks, companies. Health savings accounts are restricted from being invested in life insurance policies. Some other restrictions to HSA accounts, they can’t be rolled over to an existing retirement plan, penalized if you withdraw money before the age of 65. Medical expenses must be documented, and the account holder should hold to documents indefinitely in the precaution the internal revenue service requests a document. If the account still has a value when the individual dies the amount can be transferred, how its taxed depends on the beneficiary in the individuals will. If the beneficiary is the spouse, it’s transferred tax-free.