Health savings account limits are going to rise in 2015. HSAs are tax-advantaged savings accounts designed for paying out medical expenses, according to Nerd Wallet. In 2015, individual contributions, including both employer and employee payments, come to $3,350. Families can receive $6,650 in payments.
This means that people who open up an HSA account can contribute as much as they want each year, up to the amount specified previously. You can also put money into other people's accounts, and it will count toward your own limit. This is a good way to help someone you know who is sick and will drain their HSA if more money doesn't go into it. Cash that is put into an HSA is tax-free, which means that the amount of money that is put into your HSA account is taken out of your taxable income. Your HSA rolls over between years, and you can even invest your HSA into a mutual fund or something similar in order to earn interest.
In order to qualify for an HSA you must have a high-deductible health insurance plan. The minimum for annual deductibles is $1,300 in order to qualify as having a HDHP. Families must have a deductible of $2,600 in 2015 to make the cut.
Taking money out of your HSA
To use your HSA, you must apply it to a health expense, such as buying drugs from the pharmacy or paying for a doctor's visit. According to the Society for Human Resources Management, if you want to take the money out of your HSA for a non-health related reason, such as to pay another bill or something that doesn't qualify for HSA, then you must pay a penalty of 20 percent on the amount used for that purpose, plus taxes.
This also comes into play for adult children. Although the Affordable Care Act allows children to be kept on their parents' health plans until the age of 26, the IRS has not changed its definition of dependents, which means that someone can't spend their HSA money on someone who is not as a dependent. So if an adult, independent child works somewhere but stays on his or her parents health care plan, an HSA will not cover that child's expenses.
According to HSA Center, a person can spend their HSA on qualifying dental and vision care, plus the money that would otherwise go out of their deductible. Once you meet the deductible for your insurance company, then your insurance kicks in. You would still have to pay any co-pays through your HAS.
A flexible spending account
The HSA is different from a flexible spending account (FSA), according to Healthcare.gov, which doesn't roll over from one year to the next. You can have an FSA as well as an HSA, but only under certain conditions, according to the IRS. Typically, the FSA would end up becoming an HSA after a grace period in which both are allowed to co-exist.
You can put up to $2,500 into your FSA, but you must use all the money in that year. Often, your employer will give you a window of an extra 2 and a half months to use up the money in your FSA after the year closes. Your employer may also allow you to carry over an extra $500 per year. Only one of these two options is available, however.
The bottom line with FSAs is that the government wants you to spend your money very carefully so that you don't have any leftover cash in your account.
