Why You Need a Health Savings Account
Learn why this is one of a financial planner’s favorite money-saving tools.
When you’re on a journey to financial peace and want to make every dollar work for you, a health savings account or HSA is one of the best secret weapons.
What is a Health Savings Account?
An HSA is a “tax-advantaged” savings account that allows you to put money aside for medical-related expenses. Not just medical bills—these can include expenses as simple as saline solution for your contact lenses to as major as long-term care, and also include any medical bills not covered by a high deductible.
How is an HSA “Tax-Advantaged”?
An HSA is a fantastic tool because it allows you to save on taxes in three ways:
You or your employer contribute money to the account pre-tax, meaning before any tax is taking out of your paycheck or earnings.
The money in your HSA account accumulates interest/grows tax-free.
The money in your HSA is not taxed when you withdraw it.
With these tax advantages, you get to keep and spend more of your money, and your earnings go directly to qualified medical expenditures.
How Do I Get an HSA?
You do need to qualify for an HSA. In order to open an HSA, you must:
- Be enrolled in a high-deductible health care plan, either as an individual or through your employer. In 2020, the IRS defined a high deductible health plan as any plan with a deductible of at least $1,400
- Have no other health coverage except what is permitted by the IRS (see IRS Publication 969)
- You cannot be enrolled in Medicare
Common Misconceptions about HSAs
Don’t confuse an HSA with a Flexible Spending Account (FSA). FSAs are “use it or lose it”; an employer may contribute to an FSA, and if you don’t utilize the funds within the year, only a percentage of the funds may carry over, and the rest go to your employer.
An HSA has no time limits for utilization, and that money remains yours.
Your HSA can be a backup retirement account
There’s no such thing as “over saving” to an HSA, as those funds can always be used. Once you turn 65, you can withdraw money from your HSA for other purposes, and simply pay income tax on it.
If you have a high-deductible plan and aren’t yet taking advantage of an HSA, you’re missing an opportunity to make your money work harder for you. At Aspen Wealth Strategies, our financial planners can help you strategize your savings and find plans that are a fit. Contact us to chat with a planner today to get your savings goals on track.