Savings accounts are essential for financial independence and preparation. There are many different kinds that you should be aware of and use, but one of the most beneficial is the health savings account (HSA). With the HSA, you’ll be financially empowered to do more than you ever may have expected.
Save on Taxes
Taxes can be a tricky thing. You always need to pay taxes on any money you receive as part of your yearly payments. However, you do not need to spend taxes on most savings that are kept in tax-exempt savings accounts—such as an HSA. You will not be taxed on any money you put into the HSA (up to a particular legal point).
You will be able to deduct the savings you put into the HSA from your total taxable income amount at the end of the year. Also, you will be able to withdraw and use those funds without taxes, as long as you use said funds for eligible expenses.
Pay for Medical Expenses
Medical expenses are one of those eligible expenses. Under the current system, it can be quite difficult to afford medical care. This is especially true when you consider the costs of medical insurance and the issues of coverage that people often encounter when an accident does occur.
Funds stored away in an HSA can and should be used for many practical reasons, but this is what the HSA is originally intended for. Having a financial safety net–even a modest one–can make a serious difference in an emergency. An HSA also helps you pay for dental care.
Contributions
One other great thing about an HSA is that you don’t have to be the only entity that can put funds into it. Other people can contribute as well–your friends, family, employer, or anyone else who wants to. However, there are legal limits to what can be contributed. While the limit may shift slightly, the amount is currently set at around $3,500 for individuals and $7,000 for families. This limit is projected to increase slightly in the coming years, so make sure to do the proper research with the IRS in your state to get the exact amount.
Research is key. Make sure that starting an HSA is the right decision for you by talking to your bank and making sure you understand their policies. HSAs are also only eligible for people in certain kinds of financial situations, so you also need to make sure you qualify.
Here’s more to read: What You Need to Know About Inheritance and Taxes
