How 2 Do Things

Health Savings Accounts or HSAs are designed to help your better control your medical costs and to save money in the process. Follow the steps below to understand how to use your Health Savings Account or HSA.

Determine if you employer offers a Health Savings Account, high deductible plan.

Enroll in the plan, and open up your HSA. You can choose how much to deposit into your HSA each month.

Lower medical premiums will be deducted from your pay check each month; however, your deductible will be much higher. At first glance, since your deductible is higher, it feels like you are actually paying more out of pocket when you have doctor’s visits. However, the reality is that you will most likely save money because your premiums are lower and over the course of the year, your account will grow (in contrast to your expensive premiums just disappearing like standard plans).

If you remain relatively healthy, you will save money in an interest bearing account. Further, when you reach a certain balance, you can invest the money into funds so that it virtually acts as a second IRA.

Unlike a flexible spending account or FSA, the money is yours and will keep rolling over to the next year for your use or investment. It will even follow you if you leave your job, or upon your death, it can transfer to a beneficiary.

You can use your HSA to pay for doctors visits, contact lenses, glasses, prescription medicines and over-the-counter medicines, and much more. For a complete list of qualified medical expenses, see IRA Publication 502, page 5.

While HSA’s and high deductible plans are relatively new and have not been embraced by the public, you have the potential of saving a lot of money by enrolling in the plan.
 
There is a maximum each year that you can contribute to your HSA. In 2008, the maximum contribution for individuals is $2,900, or $5,800 for families.