How to use your HSA

Well...I have to admit that it has been a slow month in posts from The Shoppe.  Sorry about that.  The Shoppe has been extremely business placing customers in appropriate health insurance plans.

For the final post of the month I would like to discuss how to use your Health Savings Account (HSA) once you have opened one up.

The First Method
The main concept of electing an HSA qualifying plan of health insurance is that the premiums were substantially lower than a traditional plan that included unlimited office visit copays and a generic drug card.  Instead of paying the additional $40-$100 more in monthly premium for a plan with pre-paid benefits, copays, you would take the difference in premium and deposit into your HSA account in which you would be provided a debit card and check book to pay for qualifying medical expenses.  So...when it was time for an office visit and a bill was received you would simply pay out of the HSA, and the total amount spent would go against your health insurance plan deductible, where copays do not.

This method will end up with the bank sending you a 1099 at the beginning of each calendar year declaring how much money was deposited into the account for the prior year.  This reflected amount is what you would take as a 100% above-the-line tax deduction, meaning your taxable income is reduced by the total amount that was deposited into the HSA.  Any remaining funds in the account will roll-over to the next year for additional contribution.

Bottom line is that your medical expenses are paid for tax-free.

The Second Method
You are allowed to contribute up to $3,050 for an individual and $6,150 for a family for the year 2010 into the HSA.  If you are above age 55 than the IRS allows for an additional $1,000 to be contributed.  The total allowable or any amount can be deposited at any time throughout the year.

If you have available funds to set aside and deposit into the HSA, then remember, that once deposited you can only withdraw the money tax-free to pay for or reimburse on qualified medical expenses.  If you take the money out for non-qualified expenses you will be subject to a 10% penalty and must pay taxes on that amount.

So...if you are not looking to have much money in your HSA that you can not access, well only for qualified expenses, it might be smart to make small deposits into the account and see how far those funds can take you.

The Third Method
The final method is the one that I use and promote.  Depending on your bank in where you open your HSA your account may be free or cost anywhere from $2-$5/month to maintain in fees.  My account is free and I keep a minimum balance of $25.  If there were monthly admin fees then I would keep a minimum to cover the monthly fees.

For all medical expenses I use my personal credit card to pay out.  I gain miles and get a few months to pay off, depending on APR percentages.  Towards the end of the year I will add up my medical expenses and then take enough paychecks to equal the total amount and deposit them into my HSA. Once the deposits clear I will withdraw the total deposited amount as a reimbursement to the credit card bill I have paid off that was used to pay for qualifying expenses.

This allows for my HSA account to stay at $25, however the bank will send me a 1099 reflecting the total amount that was deposited in which I would take a 100% above-the-line tax deduction on that amount.

Catch the drift?

Please call The Shoppe with any question on your HSA.

Thanks,

The Shoppe