Information on Health Savings Account Contributions

Starting a health savings account could be one of the best financial decisions that you could make. The health savings account began in 2004 and it has emerged as one of the fastest growing health care plans since that time. Despite its success, there are still many that do not understand health savings accounts or how the contributions work. Here are a few things to know about health savings account contributions.

Tax-Free Money

The biggest benefit of making contributions to a health savings account is that the money is not subject to taxes. The money can be taken directly out of your paycheck without taking taxes out of it first. This is done in the same way that a 401k account is funded. Once the money is deposited, you can also deduct this amount from your year-end taxes, which reduces your yearly taxable income. This will allow you to pay fewer taxes at the end of the year or get a bigger refund. In addition to these benefits, you never have to pay taxes when you use the money either. As long as you spend the money on qualified health care expenses, you are safe and tax-free.

Long-Term Savings

Another great thing about making health savings account contributions is that you can save money for the long term. You can make contributions up until age 65. If you make steady contributions throughout your life up until that point, you will have a nice medical expense nest egg built up for all of the costs that you may incur. As you get older, it is important to have more money for medical expenses and a health savings account makes this possible. You never pay taxes on the money, so it can sit there in the account for as long as you wish.

High Deductible Insurance

In order to qualify for a health savings account, you have to have a high deductible health insurance plan. This means that you will likely be giving up the benefits that come with a better insurance plan for the use of your health savings account. You probably will not have access to co-pay programs for doctor visits and prescriptions.

Contribution Limits

Although this is a great idea for sheltering your money from taxes for health care expenses, there is a limit to what you can do with it. You can't just keep putting money in it as often as you would like. There is a limit for each calendar year that you can contribute. It is different every year and is mandated by the government. You will want to check with your policy administrator to make sure that you are within the law on your contributions. If you go over the limit, you are no longer exempt from taxes. You will have to pay an excise tax on the money as well as count it on your personal tax liability. You will want to stay within the limits of this rule as much as possible.

 

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