What is an HSA?

HSA stands for Health Savings Account. It is an option you may have heard of, as it is suggested with some insurance plans. We all have to make the hard choice of finding the right insurance plan that works for our situation. A Health Savings Account is an option that is often overlooked. There are many positives to an HSA, especially aspects that will benefit you in the long run. However, it is not for everyone, and may not work with your health insurance plan. Before heading out to change your plan and open an account, learn about some of the pros and cons of this option. Always make financial decisions with all the information. 

HSA

The primary purpose of a Health Savings Account is to have money put aside for all health-related bills. It is a savings account that can only be used on approved medical or health-related items. This makes it different than a standard savings account. As mentioned, Health Savings Accounts are only available with some health insurance plans. The plans have to be a high-deductible health plans. Educate yourself on all that this type of coverage contains. It needs to be the right coverage for your situation. If your insurance changes for any reason, your saved money does not disappear. The savings account belongs to you, and you can still use it until it is empty. 

High Deductible 

You will pay a higher deductible when signing up for a Health Savings Account plan. You will be expected to pay more at the doctor’s throughout the year until you reach your deductible. However, the trade-off is that the monthly premium is much less than other plans. Other plans will have a higher monthly premium with a lower deductible. Once you have saved enough in your Health Savings Account, paying the higher deductible won’t be as much of a burden. This option would mean you would want to prioritize saving money for your future health bills. This would be especially important for those with children that could have more health issues randomly occurring. 

Contributions 

Unlike a regular savings account, there is a limit to how much money you can contribute each year. As of 2020, an individual can put in $3,550, and a family can put in up to $7,100. Once you hit 55 years old, you can contribute an extra $1,000 on top of those numbers. There are penalties if you use the fund for anything not medical. Because of the penalties, you will want to ensure and budget how much you contribute. Knowing that it will cost you more if you need those funds for something else. Another thing to check is the maintenance fees associated with a Health Savings Account. It is worth shopping around to get the best deal. 

Pre-tax

All the money you put into a Health Savings Account is taken out pre-tax. This will pay off when it is time to file taxes. Adding money to your Health Savings Account will reduce your yearly taxable income. For example, if you made $60,000 this year and were able to put $7,000 in your health savings account, your taxable income is now $53,000. What a great benefit to get while you are saving for your health. If you do not need the extra funds, it can do more for you in your Health Saving Account. You will lower your taxable income and not have to find the money to pay any medical bills that occur out of the blue. 

Extra Retirement 

Retirement is something that we are all striving to prepare for. A Health Savings Account is another way to increase your retirement. If you can stay healthy enough and not have to use all the funds for health reasons, it can grow substantially. While sitting in the account, it will accumulate interest increasing the amount. There are penalties if you try to take it out for any use other than medical until you are sixty-five. At that point, you can cash it out and use it however you want. This could motivate you to keep adding money even when you are not using it all each year. It gives you another option to save for your later years. 

Everyone has different financial journeys. However, there are many positives to using a Health Savings Account in the short and long term. Always talk to a professional about all your options and what fits best with your lifestyle and personal goals.