Tax-Advantaged Medical Plans – The HSA

Do you have medical expenses that you incur every single year? Do you always use up your entire medical insurance deductible on co-pays?

If so, a couple of medical saving plans are available that would allow you to use tax-free money to pay for your medical expenses. That is an automatic 28%+ saving! Every time you pay the co-pay using your checkbook, credit card, or debit card, you are paying with money that has already been taxed by the federal, state, and local governments.

The first medical savings plan that allows you to pay for your co-pays tax-free money is a Flexible Spending Account, sometimes just called a “Flex Account.” How does a Flex Account work? Simple. You inform your employer that you wish to set a portion of your paycheck aside for medical expenses. You will need to visit your Human Resources department and fill out the appropriate form to do this. And then, each pay period, the designated amount of money is withheld from your check, tax-free, and deposited in a savings account for you to use for your next doctor’s visit. And the best part, since you are withholding the money tax-free, you will pay less in taxes at the end of the year. It’s a win-win.

The second medical savings plan is called an HSA or Health Savings Account. Due to the rising cost of medical expenses, our government has come up with what is known as a high-deductible savings plan for medical expenses. How it works is this, you can set aside money, tax-free, into an account that you own. This means that if you decide to change jobs or quit entirely, you keep the money and the account. The account is a bank account in your name. What is great about this plan is that most employers will put money in this account for you! Every year, my company puts in $2000 for me to use for medical expenses. However, you need to know about one catch before pursuing this plan. This is a high deductible plan, which means my deductible is also $2000 per year. This plan will pay off if you are a healthy individual whose expenses are less than $2000 per year. Once again, check with your Human Resources Department to get more details on this plan.

Using these two plans can save a tremendous amount of money on your medical expenses and reduce the amount of taxes you will pay at the end of the year. If you have “planned medical expenses” every year, it will benefit you by planning and investigating one of these tax-free plans.