If you’re health care premiums are exploding like mine, would you like a way to lower them while also getting a a tax deduction? There are two financial instruments out there that fit the bill. They are the Flex Account or FSA, and the HSA or Health Savings Account.
You might be familiar with the FSA through your workplace. Most employers provide information on them every year, because it can be a valuable benefit. The contributions you make each pay period are taken pre-tax reducing your tax burden. The fact that you can take money out of the account before you even put anything into it is really nice too. The drawback with a flex savings account though is that you have to try predict your expenses, and if you guess wrong, you lose the money you have left at the end of the year.
If you want an account that can grow every year though, you should consider an HSA. You never lose what you’ve deposited to your account, and you can use it at any time for qualified health related expenses. It has the same pre-tax benefits as the flex, and you can contribute up to the current health savings account contribution limits which vary depending on if you have a family or not. The one downside with an HSA though, is you can only use the amount of money you have already deposited.
Another sweet deal with health savings accounts is that as long as it’s for a qualifying medical expense, your withdrawals are tax free. You can use the money for other purposes but you will have to pay taxes as well as penalties if you are under 65.
In the end, if you’re willing to risk not having much to draw on for the first year, a health savings account is definitely the way to go. Most of can’t afford a high deductible, so we’re stuck paying through the nose. HSA’s can give people that ability lower their insurance costs over time. Which seems like something we all should do in our current health care crunch.
Michael Peterson has been involved with online consumer education primarily involving financial products since 1996. You can learn more about Health Savings Accounts or HSA Contribution Limits by visiting his latest web sites.