A Family Health Savings Account (HSA) is like a personal savings account for your family, but it can only be used for qualified healthcare expenses. It is not a health insurance plan. To be eligible, you must be enrolled in a High-Deductible Health Plan (HDHP). HDHPs work differently than traditional POS or PPO plans in that all healthcare expenses are paid out-of-pocket until the deductible is met.
A deductible is the amount you must pay for covered health expenses before your insurance company begins to cover its share for non-preventive healthcare services. But while deductibles may be high, your monthly premiums tend to dip much lower than most other types of health insurance plans.
With a Family Health Savings Account health insurance plan, a wide range of medical, dental and mental health services are eligible for important tax advantages. Contributions can come from you, your employer, a relative or anyone else who wants to add to your HSA. The Internal Revenue Service does, however, set limits. Contributions are typically made with pre-tax dollars, through payroll deductions at your employer. As a result, they are not included in your gross income and are not subject to federal income taxes. In most states, contributions are not subject to state income taxes.
Because of the great tax-advantages, there are lots of rules about who can start a family HSA, who can contribute money to an HSA, and what that money can be used for. That’s a lot to research on your own, but at Shelton Insurance, we already know the details and can help explain all the benefits available.
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If you make contributions with after-tax dollars, you can deduct them from your gross income on your tax return, reducing your tax bill for the year. Withdrawals from your family HSA are not subject to federal or state taxes if you use them for qualified medical expenses. Any interest or other earnings on the money in the account is tax free. If you have money left in your HSA at the end of the year, it rolls over to the next year.
The money in your family HSA remains available for future qualified medical expenses even if you change health insurance plans, go to work for a different employer, or retire. Most HSAs issue a debit card, so you can pay for prescription medications and other eligible expenses right away.
Now that you know the benefits, there are a few other Family Health Savings Account details to consider. A High-Deductible Health Plan, which you are required to have in order to qualify for an HSA, can put a greater financial burden on you than other types of health insurance. Even though you will pay less in premiums each month, it could be difficult—even with money in an HSA—to come up with the cash to meet the deductible for a costly medical procedure. Some people are reluctant to seek healthcare when they need it because they don’t want to spend the money in their HSA account.
If you withdraw funds for non-qualified expenses before you turn 65, you’ll owe taxes on the money plus a 20% penalty. After age 65, you’ll owe taxes but not the penalty. You must keep receipts to prove that your withdrawals were used for qualified health expenses. Some family HSAs charge a monthly maintenance fee or a per-transaction fee, which varies by institution. While typically not very high, the fees do cut into your bottom line. Sometimes these fees are waived if you maintain a certain minimum balance.
Is a Family HSA sounding good? At Shelton Insurance, we can thoroughly explain all the benefits of family health savings account insurance plans, just ask! Call us at (831) 637-8941.