Are you taking advantage of money-saving fitness and health tax breaks? Money Girl covers seven tips to take charge of your health and wealth so you can feel good, look good, and live the lifestyle you want.
Everyone knows that it’s smart to take care of your health so you feel good, look good, and live the lifestyle you want. Interestingly, studies have also shown strong connections between our health and our wealth.
For instance, did you know that being overweight can cause you to earn much less over your career? Likewise, getting regular exercise can make you more successful and even command higher wages.
In this episode, I’ll cover seven money-saving fitness and health tax breaks to help you take charge of your health and your wealth.
Savings Tip #1: Use a Health Savings Account (HSA)
You can only use an HSA if you have a high deductible health plan. However, more Americans are choosing these plans because they’re more affordable. With insurance, the higher your deductible, the lower your premium will be.
One of the requirements for a high deductible health plan is that it must have an annual deductible that’s at least $1,300 for individual coverage or $2,600 for a family plan.
Contributions to an HSA can be made by anyone, including you, a family member, friend, or employer. There are annual contribution limits, just like with different kinds of retirement accounts.
For 2015, you can contribute up to $3,350 if you have individual coverage or $6,650 for a family plan. Contributions to an HSA, other than those from an employer, are deductible on your tax return, no matter if you itemize deductions or not.
You can take distributions from the account to pay for medical expenses—such as doctor co-pays, prescriptions, and supplies—before your deductible is satisfied and your health benefits kick in.
You can also use HSA funds for a long list of other types of expenses, even if you don’t have insurance for them, such as going to a dentist, ophthalmologist, chiropractor, or psychologist. One of my favorite ways to use HSA money is to get new pair of prescription sunglasses every couple of years.
As long as you spend the money in your HSA on qualified medial expenses, the funds are never taxed.
As long as you spend the money in your HSA on qualified medial expenses, the funds are never taxed. That means if your average income tax rate is 25%, you get an immediate 25% discount on all your out-of-pocket medical expenses. That’s huge!
But if you spend money in an HSA on non-qualified expenses, the amount you withdraw will be subject to income tax plus a 20% penalty.
If you change insurance and no longer have a high deductible health plan, you won’t be eligible to make new contributions to your HSA, but you can still spend the money on qualified medical expenses.
I’ve switched back and forth from a high deductible plan to a regular plan several times and it’s easy to continue spending your HSA money until it runs out and you cancel the account. Later on, if you switch back to a high deductible plan you can begin making contributions again to your existing HSA or open up a brand new one.