A Health Savings Account (HSA) is one of my favorite tools for both medical spending and long-term planning. An HSA lets you set aside pre-tax money specifically for qualified medical expenses. I have used mine for glasses, pharmacy items, and even therapy, which has been so helpful.
HSAs are available to anyone enrolled in a high deductible health plan, which usually means lower premiums but higher deductibles compared to traditional plans. One thing to keep in mind is that you must be in a high deductible plan to qualify, and that type of plan is not right for everyone. It is important to connect with me or your financial professional to choose a health plan that fits your needs.
Here are a few benefits of using a Health Savings Account.
Savings for Medical Expenses
HSAs let you set money aside for medical expenses such as copayments, deductibles, prescriptions, and other qualified healthcare costs your insurance may not cover. This can ease the stress of unexpected medical bills and help you stay ahead of out-of-pocket costs.
Investment Opportunities
Some HSA providers offer an investment feature once you reach a certain balance. This means your HSA can grow through interest, dividends, or market gains. Over time, this growth can create a meaningful pool of money you can use when you need it most.
Portability
Unlike Flexible Spending Accounts, which often follow a use it or lose it rule, HSA funds roll over every year. The account stays with you if you change jobs or insurance, and the money can continue growing for the long term.
Those are the reasons I like HSAs. Now here is why I love them.
HSAs offer a triple tax advantage. There are three ways an HSA can save you money.
Tax deductible contributions
Contributions are made with pre-tax dollars, which lowers your taxable income for the year. This is especially valuable if you are in a higher tax bracket.
Tax free growth
Any growth inside the account is not taxed along the way. This allows the balance to build without losing money to annual taxes.
Tax free withdrawals for qualified medical expenses
When you use your HSA for eligible medical expenses, the withdrawals are tax free. This covers doctor visits, prescriptions, certain procedures, and more.
Your HSA can also act as a backup retirement account. This is especially helpful for clients who have already maxed out their other retirement accounts or are not eligible to contribute to one.
If you take money out before age 65 for something other than medical expenses, you will owe income tax and a 20 percent penalty, so I do not recommend this unless it is an emergency. After age 65, that penalty goes away. You can still use the funds for medical expenses tax free, and if you withdraw money for other reasons, you will simply pay income tax, similar to a traditional IRA.
Another bonus is that HSAs do not have required minimum distributions. If you want to let the account grow, you can. You can also name a beneficiary so that the assets pass to a loved one, your trust, or a charity.
I know this is more than three reasons, but I did not want to leave out the most important benefits. Let’s connect if you want to review your benefits or talk through whether an HSA is a good fit for you.