Profitt Report: How a health savings account works

Photo credit: MGN

Now is the time to be thinking about your health care: the window is open to sign up for insurance through the Affordable Care Act and Medicare. While you’re at it, Mindy McIntosh, financial professional in Freeland, suggests taking a look at a health savings account, or HSA.

They’re getting more popular, growing by 16 percent from last year according to Devenir, an HSA services firm. Depending on your situation, they could be a way to save money while paying for your health care expenses.

“What's really nice about a health savings account is your putting money into that account, then when you do your taxes, anything you put in is treated as tax free dollars,” McIntosh said.

For example, let’s say you put $2,000 from your paycheck into an HSA. You aren’t going to be taxed that $2,000, so you’re saving money on the taxes you would normally pay. If you fall in the 15 percent tax bracket, that’s $300 you aren’t paying to Uncle Sam.

“They’re going to take it right off your bottom line so if your earnings were $50,000, now your earnings are $48,000,” McIntosh said.

HAS’s will earn interest, also tax-free and withdrawals from the account are tax-free, as long as you’re spending it on eligible, medical items.

Keep in mind, HSAs are only available if you have certain health insurance plans, usually ones with high deductibles. These will have a cheaper monthly premium but you pay more out of pocket for care.

These plans roll over every year and you can keep them as long as you’d like. There are limits to how much you can contribute every year, however.

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