Written by John Ferrari
Looking for a way to take the bite out of your high-deductible medical
insurance? If you wouldn’t mind saving on your taxes too, a health
savings account (HSA) may be right for you. Basically, says Phillip Cook,
CFP and president of Mogul Wealth Management, Inc., “You can use
pre-tax dollars to pay for out-of-pocket medical expenses.”
HSAs are designed for people with high-deductible medical insurance. To
be eligible your health care plan must have a minimum deductible of $1,350
for individuals ($2,700 for families). The maximum amount you can contribute
is $3,450 for individuals ($6,900 for families). Money you contribute—using
pre-tax dollars—is available to withdraw with no penalty or taxes
if used to pay for qualified medical expenses.
What if you’re healthy and don’t use all the money you contribute?
That, says Cook, is a perk; your HSA can be used as a retirement fund.
Once you reach 65 years of age, you can withdraw funds for any reason
with no penalty, although you will pay taxes on withdrawals you don’t
use for medical expenses. While your money is in the HSA, you can make
it work for you by investing it. When choosing an HSA, Cook says, look
for low fees ($25 to $50 per year), flexibility in investment options
and few limitations on withdrawals.