Health care is the largest part of the US economy and takes a big share of many peoples’ finances. This makes looking for ways to save on health care so vital. One way to do this is with health insurance savings plans, also known as health savings accounts.
These insurance plans are essentially tax deferred savings accounts that can be used to cover medical expenses. Neither the deposits in these accounts nor the interest they earn are taxable, but the money can only be used to pay for qualified medical expenses.
For those who expect to have certain medical expenses, these plans make a lot of sense. By using them, taxpayers can in effect reduce the final cost of the medical expenses incurred by whatever the tax rate on the money would have been.
However, there are limits as to how much can be deposited in these plans. It varies by year and number of dependents so anyone planning to use them needs to check on what their limit is. Limits are adjusted every year and limited catch-up contributions are allowed.
Payments from these accounts for qualified expenses can easily be made online so they are easy to use. Since any money left unused in them can be withdrawn on retirement, it is hard to go wrong.
With the tax advantages offered by health insurance savings plans, they are a good deal and those qualifying should use them. Anyone able to make a contribution should do so unless they do not anticipate having any expenses that qualify under the plans. Some points about these plans to keep in mind include:
- They are owned by the individual, and any unused portion will be carried forward to the following year.
- Over the counter medications need a doctor’s prescription if they are to be paid for with money from the savings account.
- Tax penalties will be incurred if the money is withdrawn without being used for qualifying medical expenses.