Health Savings Accounts
If you're like just about any mom out there, you have some form of medical expenses. Sally is going to need new glasses this year. Johnny will definitely need some braces on those teeth. You have to take this medication that is simply not covered in your medical insurance, and guess where the money for that comes from: you got it, your purse! Also, just like anybody else out there, you'd love to cut expenses, and maybe even save a little money to boot.
In your case, perhaps a health savings account might be just what the doctor ordered (we could not resist throwing that one in there).
"I think they offer those at work..."
Most often, the workplace is where you'd find a gem of an account like this. Typically linked with your paycheck, saving to the account is usually as easy as signing a form and designating a certain amount to be transferred from your paycheck into the account.
Here's the really spiffy part: the money is actually taken from your paycheck before taxes are taken out, so the money in the health savings account is tax-free. What's that - Sally does indeed need glasses? Not a problem; you have money set aside for it, plus you are actually saving some money by not having to pay taxes on the money you're using for the purchase.
For example: If you'd pay 25% taxes on that money and glasses cost $250, you just saved yourself over $80, since you would have had to earn $333 to pay for those glasses after taxes. An HSA can provide you a healthy discount.
This is the part where you tell me about the catch, right?
You really don't need us to tell you that, as with anything in life, rules are made to have exceptions. First off, whatever you want to purchase with your account funds has to be health and/or medical related, and this can be dictated by the IRS. So, that vacation to Maui that you were planning as a mental-health getaway probably won't be on the IRS list of medically-qualified items.
Also, you'll want to be very aware of the type of health savings account you have. Leave some unused dollars in some accounts at the end of the year and they'll disappear faster than Piers Morgan can hit that buzzing X on "America's Got Talent." A bit of knowledge and homework ahead of time can give you a good estimate of how much you'll need in the account for your needs; overestimating can set you up for an unnecessary loss of money.
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Aloysa wrote:
Tue, 01/18/2011 - 16:27 Comment #: 1I like tax free money! Who doesn't right? :-) We don't have health accounts but we do use flex spending accounts. The only thing with those, you have to be very careful when you budget your medical expenses for a year. Life is so unpredictable that you never know if you go over or under your budget.
MoneyCone wrote:
Tue, 01/18/2011 - 20:07 Comment #: 2If you have predictable or recurring medical expenses that you can anticipate in advance, HSA savings can be quite significant.
Melinda Gregory wrote:
Sat, 01/22/2011 - 13:32 Comment #: 3I agree, Aloysa, you really do have to be careful with those flex accounts. But as MoneyCone pointed out, if you know you're going to need some kind of supplies or care on a regular basis, they can be quite beneficial. Thanks for reading (and sharing)!
Daddy Paul wrote:
Sun, 01/23/2011 - 17:48 Comment #: 4A true HSA can be saved and used as a retiement account for life. You do not ever have to pay taxes if the money is spent on medical. Let me assure you when you get older you will spend more on medical.
A flex account or 125 plan is diffrent where you have to spend it or lose it. Still with tax rates high it can really pay off if you kid needs braces.