If you’re looking for a way to save money for the future, help pay for healthcare costs, and get tax benefits, a Health Savings Account (HSA) may be right for you. Before you rush to open an account, it’s important to weigh the pros and cons, and we can help! In this article, we’ll explain what a HSA is, how it works, and whether you should consider opening one to get the most out of your money now and in the future.
How HSAs Work:
If you are enrolled in a high-deductible health insurance plan, you may be eligible to open a HSA. A HSA is similar to a traditional savings account where you contribute money, earn interest, and build a balance. With a HSA, money is contributed to the account by you, an employer, or anyone else that would like to contribute, and the accumulated funds are used to pay for qualifying out-of-pocket healthcare expenses.
Funds that are saved in a Health Savings Account are pre-taxed dollars, therefore reducing your taxable income. As long as the funds are used to cover eligible expenses, you will not be taxed. And unused funds roll over each year so you don’t have to worry about losing money.
You determine how much you want to contribute to your HSA each year in accordance with the IRS government limits. Contributions can be made to the account until age 65 or when you start receiving Medicare benefits. If you do not enroll in Medicare and have a high-deductible health insurance plan, you are eligible to make contributions to your HSA. You can make tax-free withdrawals to pay for qualifying medical expenses and at age 65 you can still withdraw the money tax-free even though your annual contributions may have stopped.
Money in your Health Savings Account is easy to use. Typically, you’ll receive a debit card which makes paying for healthcare expenses like co-pays and deductibles simple and easy to track.
In most cases, a portion of the funds in a HSA can be invested in a variety of investment tools to potentially increase returns. Investing may be an option if you have unused funds in your HSA that you don’t plan to use in the short term.
Is a Health Savings Account (HSA) Worth It?
A HSA could be a good idea if you want:
- A safe way to reduce your taxable income
- To save pre-taxed money to cover out-of-pocket medical expenses
- To gain interest
- To invest to potentially increase your returns now and in the future
Always consider the pros and cons and your personal situation when deciding if a HSA is the right choice for you. Enrolling in a high-deductible plan with a hefty insurance premium may help you reap the tax benefits but may also spread your budget too thin. If you plan to withdraw the money for non-qualifying expenses or before the tax-exempt time period is up, the fees and penalties may not outweigh the benefits.
Ready to Open a HSA Account?
If you receive your health insurance plan from your employer, they may offer HSAs, if you have health insurance through another source, you can open a HSA on your own as long as you are enrolled in a high-deductible health insurance plan and meet qualifying criteria.
Ready to open an HSA? Click here to get started!