This is an article about benefits. Or, more importantly, one medical benefit you may not be aware of and how it can help you.
For many people in the U.S., it’s Open Enrollment time — the annual window during which we choose our health insurance plans for the coming year. This can be a confusing blur of options, and it’s easy to just check out.
I share that frustration; I get it.
But what if I told you there was one benefit that would help you not just one way but five different — and valuable — ways?
Enter the Health Savings Account (HSA).
What is it?
The Health Savings Account is an account you fund to help with medical expenses. The HSA is used in conjunction with a High Deductible Health Plan (HDHP). High deductible plans can be beneficial, as the premiums are generally lower, saving you money. The HSA can be used to cover any out-of-pocket medical costs you may incur.
Contributions are pre-tax and usually done through payroll deduction. That said, you can still contribute if you are self-employed or unemployed, as long as your plan is a qualifying HDHP.
The table below shows the maximum annual contribution limits. You can fund your HSA with any amount you feel comfortable with. The numbers may seem high, but remember, any dollar you contribute is one that is tax-free.
What’s in it for me?
1. All contributions are tax-free.
That means a few things. To start, it means the money you set aside will go further than setting aside money post-tax. You can certainly use this fund for qualifying medical expenses, but if you can cover those costs with other sources, you can invest your HSA dollars the same way you would with a 401k plan.
Make sure you use the same principles/risk tolerance you do with your other retirement vehicles. Speaking of retirement, you can use your HSA funds to cover your Medicare premiums when the time comes.
2. Tax-free earnings.
In an HSA, your money works for you; any interest earned on your account is tax-free. When you factor in the power of compound interest over time, that can add up to very real gain.
Wondering just how much that could amount to? Try this calculator to find out.
3. Tax-free withdrawals.
Unlike an IRA or 401k, withdrawals from an HSA are generally tax-free. The withdrawal is not taxed as long as the money is used for qualifying expenses.
4. It’s not “use it or lose it.”
Any contributions stay in the fund as long as you choose. Unlike a Flexible Spending Account, you won’t find yourself buying cases of Band-Aids at the last minute just because you have to. An HSA offers you more control over what you do — or don’t do — with your money.
5. It’s portable.
Gone are the days of staying at one job for 30 years. An HSA can be a constant in today's career hopping and freelancing. When you switch jobs, it will come with you- again giving you flexibility and control over your money.
Starting a Health Savings Account is not just a great way to cover your medical costs. It can also be an efficient way to grow your money and save for tomorrow. An HSA can be a fantastic way to invest in your future.