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When should I set up my health savings account–does it really matter?

07-03-2010 by Colleen King


Health Savings Accounts (HSAs) have been a great way to go to ”self fund’ eligible health care expenses. You can even use it for most vision and dental expenses even if you don’t have vision or dental insurance.


But the reason you have an HSA usually is for the fact that the money you put into the HSA is tax deductible. if you had a sizable expense, wouldn’t you like to be able to maximize the tax benefit? Here’s something most people miss. First, what most people do know is that in order to have an HSA, you have to have a qualified high deductible health plan. Once you have that approval or enrollment, then you can open the HSA.


Here’s what catches most people off guard though. There are different ways to fund your HSA, either by putting a full contribution in, maybe electronic fund transfer of a couple hundred a month or my personal favorite, I’ll anticipate an upcoming expense, approximate what it will cost and deposit that amount. But if you have an expense that catches you with a low balance in your HSA, you can pay for it in a regular way, credit card or check and reimburse yourself.


But to legitimately pay for an expense out of your HSA by any of the aforementioned ways, the account MUST be established prior to incurring the expense. Most people don’t know that, they think it just has to happen after you have the health plan. This basically is an honor system, meaning that generally no one is looking over your shoulder on this but if you faced an IRS audit, you do need to keep your receipts for expenses and you’ll potentially need to prove that the medical issue occurred after the HSA was established.


That’s why I tell my clients who are wavering as to whether or not they want to establish the HSA to open one as soon as you are eligible, then just put some nominal amount in it. That way you can add to it later in case something major happens. This came to light when one of my clients called and asked me where again to open their HSA. The husband had an emergency, they were going to open the HSA, drop the maximum amount into it and pay the hospital bill. Unfortunately, that wasn’t going to work.


So set up your account. Lots of banks, credit unions and others offer them. For a nice clearing house web site that lists who is offering them, go to www.hsafinder.com. But be sure to verify the details on the account, because sometimes this site misses a couple of things.


NEXT–tips on what to look for when you set up your HSA



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