Healthcare is a necessary expense for people. Even with health insurance, your finances could take a substantial hit if you need to make a visit to a clinic, hospital, or emergency room. The good news is that you can now prepare for future healthcare expenses by opening a health savings account (HSA). Designed to make healthcare easier, an HSA enables you to plan ahead so funds are available when you or a family member requires medical care. The money is there when you need it most so you can focus on what matters—recovery.
Health savings accounts help you prepare for future medical costs so you don’t have to stress about how you’ll pay the bills when a doctor’s care is necessary. Is a health savings account from a credit union best for your healthcare planning? Let’s consider the details so you can determine if it’s the right financial tool for your savings goals.
Understanding Health Savings Accounts
Before we dive into the features of health savings accounts, it’s important to first understand how they work. An HSA is a tax-exempt savings account that can be used to pay for qualifying medical expenses. They are designed to work with a high deductible health plan (HDHP) and are available for members with this type of health insurance.
When you open an HSA, you can regularly set aside money for future medical expenses. Plan for upcoming medical expenses and protect yourself in case of unforeseen accidents or illnesses. What if you come down with pneumonia or your child is injured falling off their bike? A trip to the doctor shouldn’t disrupt your financial security. Don’t fret about how you will cover these expenses; start saving now.
Who Is Eligible for a Health Savings Account at a Credit Union?
When you enroll in a qualifying high deductible health plan, you become eligible for an HSA.
Keep in mind that you will have to meet eligibility requirements established by the Internal Revenue Service (IRS). In addition to having a high deductible health plan, you will also need to:
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Have no other health coverage.
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Not be claimed as a dependent on anyone else’s tax return.
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Not be enrolled in Medicare.
If you meet these requirements, you can start saving with Capital Credit Union’s tax-advantaged health savings account.
Now that you understand how an HSA works, let’s consider the many benefits and potential drawbacks.
Tax Advantages
HSAs have many tax advantages, including tax-deductible contributions, tax-free medical withdrawals, and tax-free earnings.
When you make contributions to an HSA from your after-tax income, you can deduct these contributions from your gross income on your tax return. With these tax-deductible contributions, you can significantly lower your tax bill so you owe less and save more.
Additionally, when you use your money for qualified medical expenses, the withdrawals are not subject to federal income taxes or most state taxes. Keep in mind, if you use your HSA funds for a non-medical expense, withdrawals can be subject to income tax and a 20 percent tax penalty if you are under the age of 65. Once you turn 65, you will only have to pay income tax on non-qualifying expenses. Fortunately, many expenses qualify for these tax advantages.
When you use your HSA, you can also expect to make tax-free earnings. Any interest or dividends are tax-free. Use our HSA savings calculator to determine how much your credit union health savings account will be worth over time and adjust your contributions as needed.
An added bonus? Others can contribute to your HSA, including your employer, a relative, or a friend. These contributions are also tax-deductible unless it’s through payroll.
Lower Fees
When you open your health savings account at a credit union, you can also expect to maximize savings with no setup or annual fees on your account. Not only can you benefit from tax advantages, but you can save even more without unnecessary fees.
Higher Dividends
With a health savings account, you can typically earn higher dividends than a traditional savings account, which means you can earn faster and be better prepared when medical expenses arise. At Capital Credit Union, your HSA starts earning dividends once the balance reaches $500.
Annual Rollover
Do you have money left over in your account at the end of the year? Don’t worry, your money automatically rolls over to the next year. With no “use it or lose it” policy, your money is there when you need it, year to year.
Federally Insured
When you open a health savings account at a federally insured credit union, your balance is protected should the institution fail. NCUA share insurance covers account balances up to $250,000, so your money will be right where you need it when you need it.
Potential Drawbacks
When determining if an HSA is the right financial tool for your healthcare savings goals, you may need to consider these potential drawbacks:
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Deductibles for HDHPs are higher than other types of insurance plans.
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Penalties may apply when paying for unexpected expenses that aren’t medical.
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HSAs require more extensive recordkeeping to prove withdrawals are for qualified medical expenses.
The Bottom Line
If you already have an HDHP, a health savings account can be a great financial tool to help you plan for unexpected health emergencies. If you cannot afford to pay the cash deductible of an HDHP, you may want to consider other savings options. However, with an HSA, you can save faster with long-term tax advantages that help offset medical costs and lower your taxes.
To learn more about how you can benefit from a Capital Credit Union health savings account, schedule an appointment with one of our experts today. We will be with you every step of the way, offering personalized service for your specific savings needs and goals. Prepare for the unexpected with service you can count on.