Health Savings Accounts (HSA's) and High Deductible Health Plans (HDHP's)
If your retiring early or are self-employed, then one of your biggest expenses will be medical insurance. You can reduce this cost by opening a Health Savings Account (HSA)..
A Health Savings Account is a great option until your able to qualify for medicare. Just about anyone age 65 or younger who buys a qualified health insurance policy with a deductible of at least $1,000 for individuals, $2,000 for families, can open an HSA. An HSA lets you set aside pretax money up to the amount of the deductible (with an annual maximum of $2,600 for singles; $5,150 for families). This money can be used tax-free for medical expenses. Anything left over will grow tax-deferred similar to an IRA. After age 65, you're allowed to use the money for anything without penalty. However, you will still owe income taxes on any money that isn't used for medical expenses.
(These limits change every year. You can view the HSA contribution limits for 2009 and the upcoming HSA contribution limits for 2010. These limits can also be found on treasury.gov.)
The combination of a high-deductible policy (HDHP) and an HSA can result in cost savings that make up for the higher out-of-pocket medical expenses. The tax benefits are also a strong positive factor.
We searched on eHealthInsurance for an HSA-eligible policy and discovered one from Golden Rule for just $250 per month. It was an HDHP with a hefty $5,000 per year deductible, however, we would be saving over $6,000 per year in premiums compared to many of the standard "lower deductible" policies we found. We could instead invest almost that much into a health savings account, which will be used to pay the extra out-of-pocket expenses.
It's a true WIN-WIN situation because it's paid back in less than a year. If you don't use the deposited money, then it's rolled into retirement dollars.
Even though the deductible is higher, many people would still rather save the money on premiums and have more control over medical expenses. HSA's offer great flexibility in physician choices while also saving for retirement. Another often overlooked source of HSA eligible High Deductible Health Plans is InsureMe who searches their network of thousands of local and regional insurance agents for providers offering quality plans at affordable prices.
Related Articles:
10 Things You Should Know About Health Savings Accounts (HSA's)
Health Savings Account Contribution Limits For 2009
Health Savings Account Contribution Limits For 2010
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