Who turns down free money?
Actually, you may be doing just that. If you make a decent living, an HSA — a Health Savings Account — can save you thousands of dollars, for just a small annual fee.
HSAs have been around since 2003. They’re tax-advantaged savings accounts that can be used to pay any “qualified” medical expenses: doctor’s and dentist’s bills, hospital visits, prescriptions, even eyeglasses or transportation to a medical appointment.
You can’t buy over-the-counter medications, pick up some toothpaste or pay your health club fees with an HSA, but that’s a small sacrifice to make for the huge advantages you gain.
There are two important things to know about these savings accounts.
- You’re only eligible to open an HSA if you have a high deductible health insurance plan (HDHP), meaning your annual deductible for 2018 has to be at least $1,350 ($2,700 for family coverage).
- You need to make enough to fund your account; the maximum contribution for the coming year is $3,450 ($6,900 for families), with an extra allowance of $1,000 for those over age 55.
1. Tax-Free Money
Without an HSA, you pay your medical bills with cash, a check or a credit card. All of those come out of your pocket, after taxes have been taken out of your paycheck.
If your HSA is set up through your employer, however, contributions are made from your pay before taxes are taken out. If you’ve set up your account on your own (you can do that at any bank), you can deduct the contributions from your taxable income.
Either way, that means you don’t have to pay taxes on the HSA funds you use to pay medical bills. That can add up to well over a thousand dollars a year in tax-free money.
2. Lower Health Care Premiums
A high deductible health plan requires you to pay a lot of money to doctors and pharmacies before your insurance company starts reimbursing you. The out-of-pocket maximums will be higher than normal, too. The flip side of that bargain, though, is that HDHP premiums are a lot cheaper. An HDHP can lower your monthly payments by as much as 50% over “standard” policies.
3. Even More Free Money
Some employers make their own contributions to employees’ HSAs, as a way to encourage their workers to see a doctor regularly and stay healthy. The only thing better than funding an HSA with tax-free money — is doing it with someone else’s money.
4. The Account Belongs To You
If you have an account set up by your employer, the account belongs to you and not them. If you quit or are fired, you can take your HSA — and the money inside it — with you. That’s very different than with an employer-provided FSA (Flexible Savings Account), which the company usually keeps if you leave.
5. Pay for Non-Covered Expenses
Coverage for dentist or optometrist visits normally requires separate dental or vision insurance, and your health plan may not cover acupuncture, fertility treatments or psychiatrist visits. All of those medical costs, and many more costs often excluded by health insurance plans, can be paid with money from your HSA.
6. An HSA is a Great Investment Vehicle
All of the interest earned by the money in your account accumulates tax-free, forever. You don’t have to use a low-interest savings account for many HSAs, either; if you set up your own account you can put the money into CDs, mutual or money market funds. Some employers offer that flexibility as well.
Finally, once you turn 65 you can withdraw money from your HSA for any purpose at all — without the normal 20% tax penalty. In other words, even more tax-free money.
It’s simple to find the perfect high deductible health plan to work hand-in-hand with a Health Savings Account. One of the largest selections of HDHP options you’ll find anywhere is available through the Candor health insurance marketplace. And choosing the perfect plan takes only minutes with the user-friendly Candor app.