It’s open enrollment season, and as you review your health insurance options, you might see the term “Health Savings Account” or HSA. These accounts are tax-advantaged savings tools designed to help people with high-deductible health plans (HDHPs) manage their healthcare costs more effectively. Are you wondering if an HSA could work for you? Let’s take a closer look.
How Do HSAs Work?
Think of an HSA as a specialized savings account for healthcare expenses, but with added benefits. First, money contributed to an HSA is tax-deductible, which can lower your taxable income. Second, the funds in the account grow tax-free over time. Lastly, when you use the money for qualified medical expenses, it remains tax-free. These advantages make HSAs a unique option for covering various healthcare-related costs.
What Can You Use an HSA For?
You can use your HSA funds for a broad range of healthcare expenses, including:
- Prescription drugs
- Doctor visits
- Hospital services
- Certain over-the-counter items
Whether it’s routine prescriptions or an unexpected hospital visit, an HSA can help you build a financial cushion that’s ready when you need it.
Who Can Open an HSA?
To open and contribute to a Health Savings Account (HSA), you need to be enrolled in a qualifying high-deductible health plan (HDHP). HDHPs typically come with lower monthly premiums but higher out-of-pocket costs. This makes an HSA a valuable tool, as it can help offset those expenses and allow you to save for medical costs without the challenge of higher monthly premiums.
Why Consider an HSA?
- Unused Funds Roll Over: Unlike Flexible Spending Accounts (FSAs), you don’t have to use all the money in your HSA in the same year. Whatever you don’t spend rolls over, year after year, which can help you build savings for future healthcare expenses.
- HSAs Are Portable: Whether you change jobs or switch healthcare plans, your HSA stays with you so that you won’t lose your savings.
- Retirement Savings Potential: Starting at age 65, you can use your HSA for any expense, not just medical. Non-medical withdrawals are taxed like a traditional IRA, making an HSA a potential supplement to your retirement savings.
Is an HSA Right for You?
If you’re enrolled in an HDHP, an HSA could be a strong choice to help you save on healthcare costs. It can be especially useful if you want to build a financial safety net for future medical expenses or even boost your retirement savings. Plus, the tax advantages associated with HSAs can add up to substantial savings over time.
Open enrollment is a great time to reassess your healthcare strategy. If you are unsure whether an HSA is right for you, consider contacting a CERTIFIED FINANCIAL PLANNER® professional who can help provide personalized guidance along your financial journey.
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Cory Reamer,
is an Advisor at The Welch Group, LLC, specializing in providing Fee-Only investment management and financial advice to families throughout the United States. Cory graduated as a student-athlete with a degree in Finance from The University of Alabama and is passionate about helping others on their financial journey. For more information, visit The Welch Group. Consult your financial advisor before acting on comments in this article.
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