Making the Most of Your HSA
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How HSA's Work
It is common for many people to consider their expenses and look for cost savings throughout the year. Many people have done just that through HSAs or Healthcare Savings Accounts, which work in conjunction with high-deductible health plans (HDHPs). Whether opting for an employer-sponsored HDHP or buying one from the open market, pairing it with a HSA offers a number of cost savings and even tax benefits as well as earnings over time that are worth considering.
As their name implies, a Healthcare Savings Account (HSA) is an account that you create and maintain in order to pay for current and future healthcare expenses. Unlike healthcare flexible savings accounts (FSAs), HSAs offer a lifetime value that does not expire. That is, once you deposit the money into a HSA, it is yours for life. If you don't use it in a given 12-month period, it rolls over and may continue to gain interest over time, which you can then use as additional funds for healthcare costs in the future.
One of the biggest benefits of having and maintaining a HSA is that its funds are completely immune to taxation when used properly. HSA funds are deducted directly from your pre-tax earnings, may be invested without capital gains tax and can be used to pay for qualified medical expenses, all without ever being taxed themselves, a phenomenon known as being "triple tax-free." This model is helpful for those looking to maximize their earnings over time to shoulder the burden of rising healthcare costs in the future, as well as for those who don't have those costs right now.
In other words, one way to maximize your HSA is to squirrel away the funds now to use them as a means to fund your healthcare costs in retirement.
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Not everyone qualifies for an HSA since they must be used with qualified high-deductible health plans . Anyone pairing an HSA with a HDHP will need to pay for medical costs or prescriptions (other than qualified preventative care such as annual physicals and screenings) out of pocket up to the amount specified by the deductible. Then, a co-insurance kicks in up to an out-of-pocket yearly maximum.
For those among us who remain healthy into our Golden Years, it is possible to use an HSA as a "stealth" retirement account. This is because, once you reach the age of 65, your HSA essentially acts similar to a traditional IRA. That is, you can withdraw from it for non-healthcare-related expenses without penalty. You just pay taxes on the withdrawals at the same rate as your IRA.
Now, there are a fair few people out there who shouldn't use an HSA. Those include the chronically ill and anyone anticipating major medical expenses (such as surgery) over the short term. For the rest of us, the HSA remains a viable and potentially profitable avenue for cost savings, retirement and healthcare expenses that is worth considering.
For more information on Health Savings Accounts, access the full article click here.
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