A Health Savings Account (HSA) gives solo business owners an efficient way to pay out-of-pocket health insurance expenses. The key benefit of an HSA is that it allows you to put away a portion of your income without being taxed. Let's learn how HSAs are commonly used to see if this option might be a good fit for you and your family.
Higher Deductibles, Lower Premiums
In order to be eligible to contribute to an HSA, you need to be enrolled in a high deductible health insurance plan. High deductible health insurance plans can be a good option if you and your family are generally in good health and only tend to visit the doctor for more routine checkups. Enrolling in a high deductible plan can help reduce your premium costs which frees up funds to contribute to an HSA. HSAs are commonly offered by health insurance companies, so you can sign up for the account simultaneously when signing up for your health insurance plan. If your insurance policy doesn't offer an HSA option, it's possible to open a separate account at practically any financial institution.
Reducing Your Taxable Income
Contributing to an HSA is a way to reduce the amount of taxable income you make a year. You can maximize your income while simultaneously saving for healthcare expenses now and in the future. Families can contribute up to $6,900 to their HSA in 2018. The money you contribute to your HSA will roll over from year to year, which means it is possible to grow your HSA funds over time. While these funds typically can't be used to pay for insurance premiums themselves, they can be used to pay for co-pays, deductibles, and other eligible non-covered expenses.
The government has placed restrictions on how much a person can contribute to their HSA based on their age and marital status, and these restrictions change every year. The 2018 maximum is $3,450 for individuals and $6,900 for a family.1 Adults over the age of 55 are allowed to contribute an extra $1,000. If you choose to open an HSA, you must make contributions in cash as opposed to other types of property, including stocks or bonds. Your business and family are allowed to contribute to an HSA on your behalf too. The contribution limits for employers generally change every year as well.
How to Use It
Some people use their HSA as a straight savings account while others may choose to invest some of the money in their account in hopes that it grows and can be used for future healthcare expenses. An HSA can be a good way for solo business owners and their families to lower their monthly insurance premiums while using those savings to put aside funds tax-free for future, eligible medical expenses.
Brian Plain and Gradient Advisors, LLC do not provide tax and/or legal advice, but will work with your attorney or independent tax or legal advisor. In the event that you do not have your own attorney or tax professional we will partner with local CPA firms to provide tax services.