Everything You Need to Know About Your Health Savings Plan

A health saving plan or account has the same features as a personal saving account. The only difference is that the money in a health savings account can only be used to meet healthcare expenses. The benefit, however, is that you can fund your HSA with pre-tax dollars. This means that Uncle Sam is effectively matching 25% or more of your contributions, making it a very effective investment for individuals who are very ill and frequently utilize the savings, or if you are very healthy and can stack up the savings towards future medical events in your golden years.


The ownership and control of the funds in the health savings account lies solely on you – the employer and insurer have nothing to do with it. The health savings account allows you to become the sole beneficiary, or even include other dependents such as your spouse and children. 

Eligibility Criteria

For one to qualify for HSA, he or she must fulfill the following requirements:

  • You must be enrolled in a high deductible health plan – a special type of health insurance. While HDHP is characterized by high deductibles, the monthly premiums are usually significantly lower than those plans involving low deductibles. A young adult who is just starting out her career may find these appealing because the upfront costs are much less compared to the ones in low deductibles insurance plans. High-Deductible- Health-Plan was designed to cover serious injuries and illnesses – exclusive of preventative care such as adult immunizations and annual check-ups.
  • You should not have another health cover apart from the ones catering for accidents, dental care, vision care, long-term care and disability 
  • You are not covered by Medicare
  • You are not included in the tax return of another person as a dependent. 

What are the benefits of a health savings plan?

  1. The plan allows contributions from many different sources such as the employer, relatives and friends, and any other party that would wish to participate towards building your health savings account. 
  2. As mentioned earlier, all the contributions made by the employer are not taxed. As such, they are exempted from federal income taxes. Should your employer decide to contribute towards your HSA, the amount does not form part of the gross income. 
  3. Payments to the health savings plan are tax deductible. It, therefore, means that the contributions made in (2) are deductive from the gross income on the tax return. This option offers a substantial boost because you pay less tax at the end of the year. 
  4. The interest earned on the money or assets in the account are tax fee. 
  5. If the withdrawals made from the HSA are used to pay for qualifying medical expenses, they are not subject to state and federal tax. 
  6. The remaining money in your health savings plan at the end of the year is rolled over to the next year. 
  7. Young people need not worry about the future anticipated changes. The funds in the account will still be available even when you change employers, or your health insurance plan. 
  8. Many people appreciate the convenience that comes with health savings plans. Most of the providers issue a debit card for account holders to be able to pay medical expenses hassle-free. One may also easily access cash through the ATM using the debit card. 
  9. Poor record keeping may cripple your ability to prove that you used the withdrawals to pay for qualified medical expenses. Ensure to keep your receipts safe at all times. 
  10. Another type of risk associated with health savings plan arise from the tax and penalties you may owe should you withdraw the money for non-qualified expenses before turning 65. Should this happen, prepare yourself to pay tax on the money, and 20 percent penalty. When you use the funds on non-qualified expenses after 65 years of age, you will not be penalized, but you will owe tax. 

Are there any types of risks associated with a health savings plan? 

Just like any investment, an HSA is only as effective as how aggressively you save. A health savings account does you no good if you put no money towards it. Understand your options and make regular contributions a part of the natural rhythm of your life. Aggressive saving and investing requires less effort and discipline if you can utilize automatic withdrawals or other low-effort habits and practices.

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