Unlocking the Power of Your Health Savings Account (HSA)
Are you tired of paying for health insurance just to end up spending hundreds of dollars on medical expenses out of pocket? A Health Savings Account, or HSA, can help relieve some of the frustration and financial strain that comes with medical bills.
About one in ten Americans has an HSA, or about 33 million people. Unfortunately, a person can only contribute to an HSA if they also have an HSA-qualified health insurance plan, leaving about 90% of Americans without access to an HSA. If you do have access to an HSA, you could be saving money on your medical expenses. Learn more about this important health benefit and how you can make the most of it.
What is a Health Savings Account (HSA)?
Think of an HSA as an extra bank account that’s specifically designed to tackle those pesky, unexpected medical bills. It’s like having a secret stash of cash that you can use exclusively for qualified medical expenses.
How does an HSA work?
You need to have a high-deductible health plan (HDHP) in place. This type of plan means your health insurance deductible is higher compared to traditional plans.
Once you’re all set up with an HDHP, you can start contributing to your HSA. Your contributions are made with pre-tax money, which means you don’t pay taxes on the amount of money that goes straight from your paycheck to your HSA. You can contribute up to a certain limit each year (the IRS sets the amount), and any unused funds can be rolled over to the next year. It’s like having a financial safety net that grows over time.
Benefits of an HSA.
The main benefit of an HSA is the tax savings. Your income gets taxed regardless. By putting some of your paycheck into an HSA, you can build up more of a savings since you aren’t paying taxes on that amount.
Saving money is hard. One benefit of an HSA is that it’s automatically deducted from your paycheck, so you don’t have to manually put money away.
An HSA gives you more control over your healthcare expenses. You get to decide how and when to spend your HSA funds on qualified medical expenses like doctor’s visits, prescriptions, and even some over-the-counter goods including items for sun care, acne, skincare, and tons of items for families that are expecting. Check out what you can buy at the HSA Store. If you use your HSA funds for qualified expenses, you won’t pay any taxes on that money.
Your HSA funds roll over, so you can continue to build your health savings account. Once you reach a certain balance, you can even invest your HSA funds just like you would with a retirement account.
Drawbacks of an HSA.
There are a couple of things to keep in mind when considering signing up for an HSA. You can only open an HSA if you have an HDHP. So, if you prefer a low-deductible plan or your employer doesn’t offer a high-deductible plan, an HSA might not be an option for you. Additionally, there are some penalties if you withdraw funds for non-qualified expenses before you turn 65. So, make sure you’re familiar with the rules to avoid any surprises.
What is the difference between an HSA and an FSA?
An FSA is an employer sponsored plan vs an HSA which is owned by you. If you change employers, you can take your HSA with you, but any funds contributed to your FSA generally must be spent. You can open an HSA even if it isn’t offered by your employer. With FSAs, you must spend the money by the end of the year or carryover period, which could mean wasting funds if you don’t spend them.
Summary
An HSA can be a game-changer when it comes to managing your healthcare expenses. From tax advantages to investment opportunities, it’s like having a secret weapon in your financial arsenal. Saving money can be challenging, but when it’s automatically deducted from your paycheck, it’s a little bit easier. HSAs do require you to sign up for a plan with a higher deductible, so compare your healthcare plan options before choosing to go with an HDHP and HSA.