Health Savings Accounts, aka “HSAs” are a common financial strategy used in a provider’s arsenal. But are you clear on all the reasons why a HSA can be handy? See below for the top reasons you may want to incorporate this kind of account into your overall plan. Keep in mind HSAs can only be used if you have a high deductible health insurance plan. For more information on selecting health insurance coverage, see here.
1) HSAs Have a Super Power
HSAs provide a rare instance where you have a triple tax advantaged savings account. Deposits are made pre-tax*, withdrawals for medical/dental/vision expenses are tax-free, and the value in the account grows tax-free. Think of it like a medical IRA without required minimum distributions.
2) Unused Funds Rollover
Unused funds rollover to the next year. This is an important distinction as many confuse HSAs with FSAs. FSAs have a “use or lose it” approach while HSAs allow you to keep all the money invested in the account whether you use it that year or not.
3) You Choose How Funds are Invested
Many think of a HSA as an extension to their retirement savings. You can choose how to invest these dollars with the goal of earning higher returns. Some try to pay medical expenses out of pocket so they can more quickly grow the account balance in their HSA account, providing more financial security in their retirement years. Work with a financial adviser to determine your overall risk tolerance and strategy in how you invest these deposits.
4) You Have an Emergency Fund for Unexpected Medical Expenses
When the unexpected medical expense occurs, you have your HSA to fall back on should you not be in a position to pay the expense out of pocket. This can be a relief during a stressful situation.
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*In 2020 single individuals can contribute up to $3,550 annually, $7,100 for families, and an additional $1,000 for those age 55 and older.