Wednesday, September 25, 2019
If you’re fresh out of college or recently joined a new organization, you may have overheard someone mention the term HSA and you find yourself a little lost. An HSA isn’t a government organization or debilitating ailment—quite the opposite! HSA stands for “Health Savings Account”. This type of account helps you stay healthy and helps you afford unforeseen (and often expensive) medical costs that pop up when you least expect them. Let’s take a quick look at what exactly an HSA is and why you should consider it.
What is an HSA?
When people come into McHenry Savings Bank (MSB) asking about health savings accounts, we like to simplify it by saying that an HSA is an interest bearing, tax-deferred account for the purpose of saving for and paying the deductibles associated with a High Deductible Health Plan (HDHP).
Certain healthcare plans, whether through work or the Healthcare Marketplace, have much higher deductibles than traditional healthcare plans. That means you pay less in monthly costs, but you also pay more out of pocket before your insurance kicks in. With an HSA in place, you can put aside some money to help you pay for those higher deductibles with money free from federal taxes and penalties.
How Does an HSA Work?
You and possibly your employer can pay into your HSA throughout the year, which is then used for those deductibles. The amount (or participation) of an employer typically varies from company to company. There a few things to keep in mind, though, if you’re interested in setting up an HSA.
First, there is typically a maximum amount set that you and your employer can pay into your HSA for the year. Check with your provider to see if the HSA carries over from year to year. If you set up an HSA through McHenry Savings Bank, then it does carry over year after year and any remainder can go towards retirement.
The cost of healthcare, whether out of pocket or covered by your insurance, is something that factors into your overall financial plan. If you’re simply paying those costs from your checking account, then you are missing out on an opportunity to put aside that money into a tax- and penalty-free account, which could save you during tax season and retirement. To learn more about HSAs, call MSB today at (815) 385-3000 or stop in and speak with an expert to answer all of your questions.