HSA Health Insurance for Graduate Students
HSA insurance plans are a great option for graduate students looking to keep their health insurance cost down, while having comprehensive coverage for potential medical expenses. And, they have the added benefit of meeting eligibility requirements for opening a Health Savings Account – this is a tax deductible saving account that can be used to pay for a wide variety of medical expenses.
There are two parts to the HSA approach to medical insurance:
- HSA Health Insurance: A type of medical insurance that meets the HSA eligibility requirements as defined by the Treasury Department.
- Health Savings Account (HSA): A personal savings account opened at a bank, credit union, or other financial institution that offers HSAs.
HSA Health Insurance Plans
The first step to taking advantage of the full benefits of a Health Savings Account is to enroll in an HSA-qualified health insurance plan, also known as High Deductible Health Plans (HDHP). These plans conform to specific requirements established by the Treasury Department and are available from all of the major health insurance companies throughout the country.
With the HSA-qualified high deductible health plan as your sole form of health insurance and provided that you are not listed as a dependent on someone else’s tax returns, you will be eligible to open and fund a Health Savings Account.
Health Savings Account
Health Savings Accounts (HSAs) were created by Congress in legislation passed in December of 2003. On January 1st, 2004 financial institutions began offering these tax advantaged accounts.
An HSA is very similar to a traditional IRA; it is a retirement account that is owned by an individual. Each year you are allowed to deposit into the account any sum of money up to the maximum contribution limit. For instance, in 2014 an individual may contribute up to $3,300 into their HSA and a family (two or more) may contribute up to $6,550. These contribution limits are adjusted for inflation each year by the Treasury Department.
The money you contribute to your Health Savings Account can be deductible from your Federal income taxes as an off-the-top deduction. This tax deduction is also available in most states.
An important feature of the tax code as it relates to HSAs is that anyone can contribute to your HSA as long as the total contributions do not exceed the annual limit. If an employer makes the contribution then they get the tax deduction. However, if anyone else makes the contribution, you get the deduction.
So, for instance, if your parents wanted to provide some assistance to you while you are in graduate school and get you started on a retirement account, they could fund your HSA and you would get the tax break.
The money within Health Savings Accounts can be used for a wide range of health expenses and remain tax free. In addition to the qualified medical expenses, the money can be used for other health services such as dental, vision, orthodontics, chiropractics and more.
Any money in the account at the end of each calendar year simply remains and can be increased with the following year’s contribution. Therefore, by starting your Health Savings Account while still in graduate school, you have the potential of building a large retirement account over the course of your lifetime.
When you reach the age of 65 you will be allowed to withdraw funds for any reason. If the withdrawal is for eligible health expenses, it remains tax free. If the money is used for other purposes, you will be taxed on the withdrawal at your income tax rate (like a traditional IRA) but you will not receive any addition tax penalty.
Since HSAs and the health insurance plans are portable, starting your HSA while still a graduate student is a great way to begin your retirement savings while reducing the cost of your medical insurance.