A Health Savings Account (HSA) allows you to set aside money each year, before taxes, which can then be used to reimburse future medical expenses such as deductibles, coinsurance, copayments, etc. These savings accounts offer triple tax benefits. The money you place into the account is pre-tax, it grows tax free, and if it is spent on qualified healthcare costs, you don’t pay taxes to withdraw it. In 2019, the maximum contribution limit was increased to $3500 for individuals or up to $7,000 for families. The popularity of HSAs continues to rise, especially as more employers offer HSA access to employees. Many employers offer matching contributions which do not count towards the annual limit. An added benefit is that the account stays with you, even if you change jobs. In order to qualify, you must be a member of a High Deductible Health Plan (HDHP). Some insurance companies offer HSAs alongside their HDHP plans, but many banks also offer them.
Do your research
It’s important to consider whether you plan to use the account for wealth investment or short-term health care spending. Most people use the account for reimbursing medical expenses in the near-future. For this purpose, it’s important to consider fees and interest rates. Although there are tax benefits to both uses, the HSA provides significant tax incentives for long term investment purposes. Those who can deposit and leave money in the account long term should look closely at HSAs with strong investment options.
Not all HSAs are created equally. It can be difficult to find important details for some such as fees and interest rates. Maintenance fees vary greatly from plan to plan, and many charge additional fees. There are tools to help you pick the right account for you. Morningstar’s analysis of top plans, as well as Devinir’s HSAsearch tool are great resources to help you make the right decision. The Morningstar study compared all plans on the market, and although none performed perfect marks across the board, the HSA Authority scored best.
Build wealth with your Health Savings Account
Millennials are the first generation to have the opportunity to take full advantage of the wealth building possibilities of an HSA, although anyone under 65 can invest. These accounts are flexible, so you can reimburse yourself back at any time for health care expenses. There is no time limit. The longer the money sits in the account, the more you earn. A savvy investor could track a lifetime of healthcare expenses and receipts, and then later in life, use those reimbursements to cover their healthcare during retirement, tax free. An HSA can also be used like a 401(k) after the age of 65, at which point investments can be withdrawn for any purpose with only income tax taken out. This versatile savings account has strong wealth building potential, so don’t miss out. Start investing sooner rather than later.
Tips for making your HSA work for you
- Do your research. Find the plan that makes most sense for your purpose.
- Take advantage of the annual contribution limit for maximum impact.
- Keep thorough records, scan receipts, and save a copy of your Explanation of Benefits
I would look forward to scheduling a call to discuss the best options for you.