Benefits of a Health Savings Account (HSA)
Medical care is the costliest factor of U.S. healthcare, accounting for 90% of spending. According to eHealth, the average national cost for health insurance per month in 2020 is $456 for an individual and $1,152 for a family.1 With the expensive cost of today’s healthcare, you may be wondering how you can better save for surprise medical mishaps and routine expenses. A Health Savings Account can help.
What is a Health Savings Account?
A Health Savings Account (HSA) is a bank account used to put pre-taxed money aside specifically for your out of pocket healthcare expenses. Similar to a regular savings account, an HSA has an interest rate that allows your money to grow while it remains in the account. HSA’s are available to those with a qualified high-deductible health plan. Employers often offer HSA’s as part of a benefits package.
Who is eligible for a Health Savings Account?
The IRS has some strict guidelines as to who is eligible to open and contribute to an HSA.2 In order to open an HSA, an individual:
• Must be at least 18 years of age
• Must be enrolled in a high deductible health plan (HDHP) on the first day of a certain month
• Must not be enrolled in Medicare
• Must not be covered under any health plan that isn’t a qualified HDHP (there are few exceptions to this).
• Must not be claimed as a dependent on another individual’s tax return
Benefits of a Health Savings Account
An HSA has many advantages that make it a popular savings vehicle. Let’s dive into them.
Tax Advantages
HSA’s have numerous tax advantages. All funds invested in the account grow tax free and the contributions to the account are made using pre-tax dollars. Also, any withdrawals from the account are tax-free, so long as the money is used for qualifying medical expenses. This is where HSA’s shine from other tax-advantaged savings accounts that require you to choose between making tax-free withdrawals and contributing with pre-taxed funds.
Save Money on Medical Expenses
An HSA allows you to save money on qualifying medical expenses. The funds can be used to pay copays, deductibles, coinsurance, and any IRS qualified medical expenses from acupuncture and ambulances to wheelchairs and walkers. If you don’t use the funds on health-care expenses, you can save them for the future.
Save for Retirement
Withdrawals from your HSA account that are used towards non-qualifying medical purposes are subject to a 20% penalty. This penalty, however, does not apply to anyone 65 years old or older. Seniors can withdraw funds for any reason at any time and just pay ordinary income taxes. This advantage makes HSA’s a desirable option for retirement savings.
No Required Minimum Distributions
With most tax-advantaged retirement accounts, such as 401(k) or Traditional IRA’s, you’re subject to required minimum distributions (RMDs). Those at least 72 years age must take RMD’s annually or be subject to a 50% penalty on the remaining amount not withdrawn. With HSA’s, there are no RMD’s so you can leave your money invested for as long as you desire.
HSA’s Are an Investment
Funds in your HSA that you don’t currently need for medical purposes can be put to work by investing it. Some HSA’s allow you to invest in mutual funds, ETF’s or individual stocks. Keep in mind that this option is generally available when you maintain a certain balance in the account, and that investment choices vary from one HSA provider to another.
You’re in Control
As the account owner, you decide when and how you want to spend the money in the account. It doesn’t expire, the money is with you forever. If you decide to invest some of the funds, a financial professional can help you build a portfolio that fits you and your family’s needs.
1 https://www.ehealthinsurance.com/resources/guide/individual-health-insurance-cost#:~:text=The%20monthly%20payment%20that%20you,in%202018%20according%20to%20eHealth.
2 https://answers.healthequity.com/app/answers/detail/a_id/1236/~/hsaeligibility#:~:text=The%20IRS%20has%20strict%20guidelines,day%20of%20a%20certain%20month
Investment adviser representative and registered representative of, and securities and investment advisory services offered through Voya Financial Advisors, Inc. (member SIPC).
Archstone Financial is not a subsidiary of nor controlled by Voya Financial Advisors.
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