A health savings account can help your financial situation and make medical bills more manageable.
As healthcare costs have increased over the last five to ten years, more people have taken advantage of Health Savings Accounts as a way to keep a little more money in their pocket while maintaining coverage that provides backstop coverage for major unexpected health costs.
Essentially, this type of account can be considered an investment for a few reasons. First, the account gives similar tax benefits to an IRA without having to wait till you’re 59½ to get access to funds. Second, funds in an HSA can be invested and grow in value.
The main limitations are that HSA funds can only be used towards health expenses, and they must be paired with an active high deductible insurance plan.
What is an HSA?
An HSA is a Health Savings Account. These accounts are popular because contributions are not subject to Federal income tax – in fact, the more of your income you direct into an HSA, the less there will be for the government to take taxes from.
For example, if your taxable income after deductions is $45,000, you would owe approximately $9,040 in taxes. But if you contributed $5,000 towards your HSA, only $40,000 would be subject to taxes. In this scenario, you would owe $7,840 and still have that $5,000 available to spend on qualified health expenses.
Who qualifies for an HSA?
In order to qualify for an HSA account, you must have a high deductible insurance plan. The maximum you can currently invest per year, in 2020, is $3,550 for individuals or $7,100 for a family. These limits typically change each year.
Depending on the financial institution that manages your HSA, it may grow as it accumulates interest. The money does not expire, unlike a Flexible Spending Account – it will carry over from year to year. Remember, the purpose is to help you cover your medical expenses.
Because of the tax benefits, Health Savings Accounts are a great way to shelter money from taxes. They also ensure you’re covered if an accident happens, and serve as an asset that contributes to your overall wealth.
How to Sign Up for an HSA Investment
Most people have health insurance through their employer, but if you are self-employed, it may be a bit trickier. There are two main ways to start an HSA investment:
Through Your Employer
The most common scenario for people is to have their work offer them an option to contribute to their HSA. Employer-sponsored health insurance is usually the best choice, as employers typically can negotiate better insurance rates and may even cover a portion of your premium.
As with a 401(k) account, if you decide to leave the company, the funds are yours – you can move the HSA account to a different investment firm to keep the money rolling over.
Open An Account Directly
You can work directly with a bank or insurance company that offers Health Savings Accounts, too. Some examples:
Some accounts are free, others might run you around $2 - $4 per month, but the tax savings alone will more than cover that cost.