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Guide to Health Savings Accounts for the Young Family

Health savings account

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A health savings account can help you save money, whether you are single, married or have a family.

What is a health savings account?

A health savings account is an account you can put money into to use to pay medical expenses. This differs from a flexible spending account, which you may use to pay medical expenses but may get only through your employer.

Who Can Get a Health Savings Account?

To be eligible to open a health savings account, you must have a high deductible health insurance plan. According to Healthcare.gov, the deductible has to be at least $1,350 for a single person or $2,700 for a family. It also can’t exceed $6,650 for an individual or $13,300 for a family.

If you meet these requirements, you can put money, tax-free, into health savings account to be used to pay bills toward your deductible. These costs would include any out-of-pocket medical costs, including co-pays for doctor visits, medical procedures, lab tests, prescriptions, dental and vision care and more.

What Are the Rules?

According to IRS rules, you must use the money to pay for a qualified medical expense. Covered expenses are many and varied and can change from year to year. Examples of some qualified expenses are seeing eye dogs, smoking cessation programs, wigs, vasectomies and breast pumps.

One great aspect of health savings account that you don’t get with an FSA is that if you have money left over at the end of the year, you can keep it. It even earns interest, although the amount may be paltry, and the interest is tax-free. Still, this is a better deal than with an FSA, because, with this type of account, you forfeit any money left in it at the end of the year.

Beware, however, of any maximum amounts your health savings account may be set for of pre-tax dollars contributions; exceed them and you may be assessed a penalty, according to 1040.com. The IRS wants to ensure no one is using their HSA as a tax shelter.

The Balance says this year, limits are $3,450 for an individual and $6,900 for a family.

Also take note that if you owe the IRS money, they can seize whatever you have in your health savings account. Worse, you’ll get whacked with a 20 percent fee for using the money for a matter unrelated to medical expenses.

Exemptions for Some

However, if you are 65, (or disabled) this rule doesn’t apply.

Not that many people have their account seized by the IRS, but knowing the fee doesn’t apply to you in retirement is great because you can then use this money you saved on anything you want, fee free. If you are in your 50s or early 60s, you can even consider this type of account an investment vehicle. Those 55 and over, in fact, are allowed to contribute an extra $1,000 above and beyond the maximum allowable limit.

Although you don’t always need to produce a receipt to use the debit card attached to your health savings account or reimburse yourself for a medical expense, it’s a good idea to hold onto the receipts in case the IRS has any questions for you. Some HSA facilitators allow you to upload receipts online for easy access. Simply snap a picture with your smartphone and you’re good to go.

Health savings account
A health savings account is a great way to prepare for medical expenses.

Is a Health Savings Account Worth the Trouble?

You may wonder how much you can save with a health savings account. A family with young children, in particular, has more to save because they have higher expenses. Use this handy HSA calculator to figure how much you can save by putting pre-tax dollars into an HSA.

For example, an individual filing as head of household with one dependent, earning $60,000 a year and putting $5,000 into an HSA, would save $1,250 in taxes, according to the calculator.

So how do you set up health savings account for yourself or your family?

You can open health savings account at a bank or credit union, or through a broker or at your insurance company if they offer this service. Look at the advantages and disadvantages of each option and choose the one that would be most suitable for you and your family.

The smaller your family, the more you have to gain, as it is more likely that the maximum allowable amount will cover your family’s expenses. But even if you have a large family, saving even $1,000 or $2,000 makes a difference. You can even use this money for orthodontia.

For more tips and tricks for making money and saving money, read some more of our blog posts.


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