The Unique Advantages of Health Savings Accounts
By Clarity Point on March 1, 2022
You’ve probably heard the term “Health Savings Account” or “HSA” before. What is an HSA? Why are they valuable? In today’s video, we’ll discuss the unique advantages an HSA can have for you and your family.
What is a Health Savings Account?
An HSA allows you to contribute funds on a pre-tax basis and make tax-free withdrawals to pay for qualified medical expenses like prescriptions, co-pays, or dental care. It can be a great fit for those who have health care plans with high deductibles. Be careful though, as using your HSA to pay for non-qualified expenses before age 65 can trigger taxes and penalties.
Benefits
Many employers offer HSAs as part of a benefits package; however, as long as you meet the eligibility requirements, you can open one on your own. The funds in your account never expire and carry over from year to year. This is a unique advantage of HSAs that sets them apart from flexible spending accounts, or FSAs, which require you to use the funds in the account by the end of the year or lose them.
Tax Advantage
HSAs are not only an easy way to put money away for medical expenses; these accounts also come with unique tax benefits. If you have an HSA through your employer, contributions can be deducted from your paycheck on a pre-tax basis, effectively reducing the amount of your income being taxed. If you’ve opened one yourself, contributions are tax-deductible and don’t require you to itemize your return. Contributions can also be invested, allowing you to take advantage of compounding growth on a tax-deferred basis, which can supercharge your ability to save. These returns are also tax-free as long as they are used for qualified medical expenses.
Retirement Benefits
HSAs may not seem like a retirement tool at first glance, but they can be very beneficial as you get older. A recent study by Fidelity Investments shows that an average 65-year-old couple who retired in 2021 will need about $300,000 to cover out of pocket healthcare costs in retirement. Please note: while Medicare recipients cannot contribute to an HSA, they can still use one to pay for medical expenses, such as Medicare premiums. Funds do not expire, so we recommend that you start saving early in an HSA to cover medical bills in retirement.
If you are considering getting an HSA account setup but are unsure where to begin, please reach out to our team. We would be more than happy to help explore how an HSA can be an effective part of your financial plan and be a benefit to you and your family.
Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.