Health Savings Accounts, or HSA, is a savings vehicle used for medical purposes. People can put their money in these accounts just like regular savings accounts. However, there are some benefits you get with HAS’s that you cannot find in other savings accounts. HSA account holders can make tax free contributions and withdrawals to their account that can be used for their medical bills. This type of savings account is designed in order to pay the medical expenses of the account holder including his/her dependents. If you want to set up an HSA, you first have to understand the health savings account rules.
HSA Rules & Eligibility
When it comes to eligibility, any taxpayer whether he is employed, self-employed or unemployed can set up this tax free savings account but on the following conditions:
- A taxpayer can set up an HSA as long as he is covered by a qualifying high-deductible health plan (HDHP).
- If the taxpayer is not covered by any other health plan excluding high-deductible plan.
- If the taxpayer is not covered by Medicare.
- If the taxpayer is not a dependent of another taxpayer.
You should also be aware that even if you meet the eligibility conditions and after the transfer of funds to your HSA, you would need to pass the testing period which would last for the entire year. If you become ineligible to make contributions for any reason, you would be charged a tax penalty.
Another type of savings account that can be used for medical purposes is the Medical Savings Account or MSA. This type of account is often confused with the health savings account but this type of account came way before the Health Savings Account. So what are the medical savings accounts rules? Not everyone can set up an MSA. Only the self-employed individuals and small businesses with less than 50 employees are offered Medical Savings Accounts.
Opening a Health Savings Account
If you are not eligible for a health savings account or a medical savings account, you still have several options when it comes to savings accounts. You can instead look for the best instant access savings accounts. This type of savings account will give you easy access to your account so you can use it whenever you need it. Before you open a savings account, there are many things you need to consider but the most important is choosing the best savings accounts interest rates. You surely want to make the most out of your money and thus you would look for savings accounts that would give you the best interest rates.
When it comes to savings account rates, don’t forget to consider your options online. Financial institutions that operate online may be able to give higher interest rates compared to physical banks as they have lower overhead costs. But aside from the interest rate on your savings account, you should also consider if there is a minimum required balance for the account. There are some banks that would charge fees if the remaining balance on your account falls below their required minimum balance.