What you need to know about financing health savings accounts

MONEY POWER: Kiplinger's Personal FinanceJanuary 26, 2014 

I signed up for a high-deductible health insurance policy for 2014. Am I eligible to contribute to a health savings account? And if so, where can I open the account?

To make tax-deductible (or pre-tax) contributions to a health savings account in 2014, your health insurance policy must have a deductible of at least $1,250 for individual coverage and $2,500 for family coverage. Plus, all covered benefits (except for preventive care) must be subject to the deductible. You can purchase an HSA-eligible policy through your employer, through the health insurance exchanges, or directly from an insurer or agent. If you’re buying directly, ehealthinsurance.com makes it easy to search for HSA-eligible policies and find a health savings account administrator.

You can contribute up to $3,300 to a health savings account if you have individual coverage, or up to $6,550 for family coverage in 2014. Your contributions are tax-deductible (or pre-tax if through an employer plan), and the money may be used tax-free in any year to pay for your deductible and other out-of-pocket medical expenses.

You can open an HSA at many banks and brokerage firms. Your employer or insurer can pair your policy with a particular HSA, but you aren’t required to get the account through that administrator. Be careful, however, that you don’t give up any matching contributions; employers offering Fidelity HSAs, for example, contribute a median of $600 for singles and $1,200 for family coverage to employees’ accounts.

Eric Remjeske, president of consulting firm Devenir, identifies two types of HSA users: short-term saver/spenders and longer-term saver/investors. Short-term savers are looking to deposit money into an HSA and use it for medical expenses in the next six to 12 months. If you’re a short-term saver, look for a low-cost provider that links your bank account or other funding source to the HSA so that the funds are conveniently available. But you’ll get the biggest tax benefits if you use the HSA as a longer-term investing vehicle. That means using other money for current medical bills and keeping HSA money growing tax-free for future medical expenses. Remjeske recommends that longer-term saver/investors look for an HSA that offers investments in mutual funds from a variety of fund companies and investment styles. “Also consider the total fees for the features you want as some of them can add up,” he says. You can search for HSA administrators using Devenir’s HSA search tool (hsasearch.com).

Kimberly Lankford is a contributing editor to Kiplinger’s Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com. And for more on this and similar money topics, visit Kiplinger.com.

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