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A Health Savings Account (HSA) is a way to plan for your medical expenses and do so in a way that is tax deductible.
If you have a high-deductible health plan (HDHP), as most seem to these days, getting an HSA will help you save money. You also cannot be enrolled in Medicare in order to qualify. However, once you qualify you can contribute pre-tax dollars of $3,500 annually for individuals and $7,000 for family coverage. If you’re over 55, you can add a “catch-up” contribution of another $1,000. (2019 limits)
But how does it work? Simple, you can contribute directly or have your employer create a secondary direct deposit to your HSA account. The account is separate from your current bank account, though many financial institutions have HSA options now.
You are provided with an HSA debit card. This works much like your regular debit card, but makes keeping track of your health expenditures very easy.
Then, you plan out what you’ll be spending this money on. The list of eligible items is quite extensive. In some instances, you might need a prescription or a Letter of Medical Necessity (LMN). Here are just a few of the expenses allowed (many of which are not covered by most HDHPs).
- Chiropractic services
- Prescription medications
- Drug and alcohol rehabilitation services
- Insurance premiums
- Massage therapy
- Reading and prescription eyeglasses
- Flu shots
- TENS units
- and much more
In most instances, your HSA can optionally double as an investment account. This way the money is earning interest while you still retain access to any needed funds.
It used to be that HSAs were difficult to set up outside of your employer. Making it even more so for the self-employed. But, as mentioned, many financial institutions have started offering the service to individuals.
I personally work with LivelyMe.com. The account was set up within a couple of hours, and investments are handled through TD Ameritrade. But do your research and find one that’s best for you.
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