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Is a Health Savings Account Right for you?
BFG explains what a Health Savings Account is and if it is the right choice for you
Consumers are often left confused in terms of health insurance and expenses and all of the various options that are involved. The HSA, or health savings account, is becoming more popular these days, but does it make sense for you? Use this guide to learn more about health savings accounts and to determine whether or not it's a match for your personal and financial circumstances.
What is a Health Savings Account (HSA)?
With an HSA, consumers set aside money each month into their account. The money in this account can only be used to pay for qualified medical expenses, including doctor visits, the costs of prescriptions, long-term care, and even healthcare coverage while unemployed.
This type of plan may be offered by an employer, or it may be sought out on an individual basis. Additionally, there's a limit to annual HSA contributions. In 2013, that was $3,250 (roughly $270/month) for an individual, and $6,450 ($540/month) for a family.
Weighing the Advantages and Disadvantages
So, what are the actual advantages and disadvantages to a health savings account? First and foremost, one of the biggest advantages of an HSA is that the money is tax-deductible. And when paying the full contribution limit, that can make a huge annual difference on tax day. Additionally, that money remains in possession of the owner of the account, and can build from year to year if unused funds remain.
On the downside, health savings accounts are going to have higher deductibles. That means that a greater amount of money is coming out of pocket to pay for medical expenses, as opposed to paying higher premiums each month.
For someone who is generally healthy, this can help him or her save money from month to month. On the downside, if something big does arise, it may be difficult to pay for those bills if funding to the HSA just started or limited funds are available due to previous medical expenses. So it's a tradeoff, and each individual will have to weigh their own personal circumstances based on budget, health and so forth to determine what makes the most sense.
Another factor to consider is that making deposits to a HSA is entirely under the control of the account holder, so without proper discipline it may be easy to put the HSA deposit last on their priorities when money is tight. Setting up a payroll deduction or direct deposit from payroll is a recommended solution, to help in making regular deposits. Individuals may also be hesitant to get the medical assistance they need because they will use up all their HSA funds. Alternative lending solutions are helpful and available in solving this dilemma.
An HSA can be a great tool for many people. Such an account offers tax benefits, puts control into the individual's own hands, offers a way to continue building up saved money for future expenses if unspent, and can be used for retirement funds after age 65. On the other side of the coin, expenses that pop up unexpectedly can be quite difficult to stay on top of. It comes down to deciding what will work best for each individual.
Visit BFGFCU.org to learn more about setting up an HSA in Summit County, Ohio, and to gain access to a variety of financial tips and budgeting tools to help make the most of every dollar.