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Millionaire Money Habits

July 29th, 2009 at 1:06 pm

What is a Health Savings Account?

Chances are you have a checking account and a savings account these days.  Maybe you even have a 401(k), a money market account, an IRA, a flexible spending account, etc.  The list of accounts that can house your money is extensive, and a recent development is a health savings account, or HSA.  This is one that raises many questions, as well as much debate.  You can get a health savings account through banks, credit unions, and possibly your employer.  Here are some important facts:

  • You qualify for an HSA if you are currently enrolled in a HDHP, a high deductible health plan.  According to the US Treasury’s website (, your deductible must be a minimum of $1100 for an individual and $2200 for a family.  They want you to have a high deductible because that means a lower premium, ideally leaving you extra money to deposit into your HSA.
  • You can use the funds to pay for any eligible medical expenses.  Usual categories include your deductible and coinsurance, dental care, vision expenses, chiropractic visits, eyeglasses and hearing aids, related transportation costs, etc.
  • All funds deposited into the account become your property, regardless of who the depositor was.  The best example is your employer.  If you participate in a health savings account through work and your employer makes contributions, that money is officially yours, and it is not subject to income taxes when it is deposited.
  • The funds can accumulate and roll over from year to year.  They do not expire if not used by a certain point.
  • If you end your coverage or switch jobs and your new employer does not offer an HSA, the money in the account is still your property and may be used for medical expenses.  You just cannot make any more deposits.
  • If you make any withdrawals for non-medical expenses, the money used is now subject to income tax as well as a 10% penalty.  (This is good reason to make sure you submit all documentation when you pay for medical expenses, and keep copies for yourself so there is little to no chance of dispute.)  The only exceptions to this rule are if you are officially over 65 or you have become disabled.

The debate surrounding health savings accounts revolves around the idea that this plan only benefits young, healthy people, and that pushes the chronically ill people that truly need the financial assistance towards insurance plans which may or may not provide all the coverage they need.  But this is a decision you need to make for yourself—would a health savings account be worth it for you or would your money be better off in a regular savings?  You can visit the US Treasury website for more detailed information, and research people’s opinions to become fully informed and come to your own conclusion.

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