The benefits of HSA’s are numerous. A prerequisite to opening an HSA account is you must be a part of a high deductible health insurance plan. A high deductible plan, in most cases, is going to offer the cheapest premiums for young, healthy individuals. Your deductible, as suggested in the name, is simply higher than the typical health insurance plan.
Once a part of a high deductible plan you become eligible for an HSA. For quick reference, you can contribute up to a maximum of $3,450 as a single individual, and up to $6,900 as a family in 2018. We’ve listed 5 benefits that make the health savings account such a powerful tool below.
5 Benefits of HSA’s
Contributions to an HSA aren’t claimed on your income tax. If you were to max the individual contribution amount at $3,450, you’re saving yourself a nice chunk of change in taxes in that year.
The HSA allows you to invest the money in the account. While it’s smart to hold some cash if you are young and healthy, why not grow the money and invest it. It’s also being grown without being taxed. This results in faster growth over time.
You can withdraw money from the HSA for qualified medical expenses tax-free. This is currently the only account available that offers a triple tax advantage such as this.
Can be an additional Retirement account
What if I don’t ever use the money for medical expenses in the HSA? Well, once reaching age 65 the HSA morphs into a traditional IRA. You can withdraw funds from the account and pay income tax just like if it was an IRA. This contrasts with a flexible savings account, or FSA, which isn’t nearly as flexible as the name suggests. FSA’s are a ‘use it or lose it’ in the year you make contributions to the account.
An HSA can travel with you. The funds are always yours to keep. When changing employers or health insurance plans, the funds will remain with you. Even if you end up switching to a non-high deductible plan, you can still use past funds for medical expenses, but can no longer make contributions.
Take time to review your employer’s health insurance options and if you are young and healthy, consider switching to a high deductible plan. You’ll pay lower premiums, and have access to an HSA. The benefits of HSA’s make it a no-brainer for someone that fits the bill. Take advantage!
If you have questions regarding your health insurance plan, we’d be happy to conduct a thorough review. Please schedule a free consultation with us today.
Levi is the Co-Founder, Financial Planner of Millennial Wealth, a fee-only financial planning firm for young professionals and tech industry employees. He is an avid sports fan, personal finance and investing geek, and enjoys a great TV show or movie. His mission is to help educate his generation about better money habits and provide financial planning services to those who want to start planning for their future today!