Pros and Cons of Health Savings Account Banks

Health savings accounts (HSAs) are your investments for future expenses related to your possible health problem. Health savings account banks are all regular banks, credit unions and several insurance companies offer health savings accounts. They are quite similar to IRA savings accounts. It is possible for you to use your HSA money to pay for several types of health expenses, right from contact lenses to even non-traditional medical treatments like acupuncture. However, there are limits to how much you can invest in HSAs. As per the stipulations for 2012 and 2013, individuals can save up to a maximum of $3,100 and $3,250 respectively. For those in the tax bracket of 25%, the amount has been fixed at $775 for 2012. For families, the maximum eligibility amount is $6,450. Every individual should understand the pros and cons of investing in health savings account banks.

Pros of Health Savings Accounts

Tax Advantages

All the amounts that you deposit in your HSA account are tax-deductible. Further, if you spend your withdrawals from health savings accounts on health-related and approved medical expenses, the withdrawals are also not taxable. As mentioned above, an individual in the 25% tax bracket can save up to $775 annually. This amount would increase if the individual has family or if the individual is above the age of 55. Further, the amounts invested with health savings account banks earn interest amounts, which are also not taxed in contrast to regular savings accounts. This interest amount might be quite small but this adds up to significant amounts over the years.

Planning with Response

The major benefit of investing in health savings accounts is long-term savings. The HSA is the emergency fund if and when you encounter health issues and related expenses in future. Until you reach the age of 65, you can withdraw the amount in your HSA account for expenses not related to health problems. However, you would need to pay taxes as well as penalty on such withdrawals. However, you are free to use your savings with health saving account banks as pure retirement money on any type of expense without any tax issues.

Cons of Health Savings Accounts

The major cons of HSAs are the various fees charged by the banks, credit unions or insurance companies such as account opening fee, transaction fee, withdrawal debit fee, and even a monthly maintenance fee. Further, the savings in HSAs are taxable in a few states though they are exempt from federal taxes. Additionally, the deductibles that you contribute to your HSA might not be enough to cover the medical expenses that could occur in any single year.