Understanding Health Savings Accounts

The following is a 3rd party contirbution
Even with insurance, the cost of healthcare in America can still feel like sustaining another injury, only this time it’s to your wallet. A new type of personal savings account, called a health savings account (HSA) can make it more affordable for certain individuals to pay for medical costs without ruining their budget or bank account. Learn how HSAs work as well as their advantages and disadvantages.

Definition

An HSA works much like any other personal savings account, but they’re only available to individuals who have a high-deductible health insurance plan. Even though these insured individuals have high deductibles, their monthly premiums are often low. If you like the idea of getting your up-front healthcare costs as low as possible, a high-deductible plan might be perfect for you. Generally, HSAs are a better fit for those who are near retirement and those in a financial position where they can save for future health care expenses.


The Good Stuff

One of the biggest selling points for HSAs is that there aren’t any requirements on how much you have to put in your account. Taking that one step further, you decide how the money in your account is spent, which can give you more options on how and where you receive the medical care you need. Much like a 401(k), your employer can contribute to your HSA. Bear in mind that even if you change jobs, every cent of the money in your HSA is under your complete control. Account holders don’t have to worry about scrambling to spend a certain percentage of money at the end of the year because it rolls over. Finally, HSA funds are tax-free. Much like your local insurance company can provide you with tips on lowering your automobile costs, they might also be able to provide you with tips for getting the most out of your HSA, so be sure to let your agent know you’re considering saving up for a rainy day at the hospital.

The Not-So-Good Stuff

Like most things in life, there’s a balance to HSAs, meaning everything about them isn’t positive. For instance, while you can shop around for medical care, information related to the overall quality of that care can be difficult to track down. There’s also the fact that you don’t know when you’ll actually have to dip into your HSA–it might be three years from now, or it might be three months from now. What this boils down to is that it can be hard to budget how much to contribute to your account. Just like you might do everything possible to keep from using money in your emergency fund, the same is true of using money in your HSA, which can lead to you delaying medical attention when you need it most. Even though you don’t pay taxes on your health account contributions, you will have to pay taxes for any money used for nonmedical reasons.

Explore your options for a health savings account by asking either your employer or your current health insurance provider. Depending on your current financial and physical health situation, the advantages mentioned above might outweigh the bad.

4 thoughts on “Understanding Health Savings Accounts

  1. Roadmap –

    Nice guest post. I love the HSA, due to the tax advantages are on hyper mode – if through payroll – NO FICA!!! This can equate out to a 30%+ tax savings pending your bracket in the end, which is amazing.

    -Lanny

  2. Hi R2R,
    Not the best article ever unfortunately – I found it hard to read. It should have mentioned max contribution limits too. They’re increasing to $3,400 / $6,750 for self/family in 2017.

    Agree with Lanny above that HSA accounts are great though. They’re the only triple tax-advantaged accounts around (no taxes on contributions, earnings or withdrawals). Plus you can claim today’s medical expenses at any time in the future. So if you can afford it, invest your HSA and pay medical costs out of pocket now and withdraw later. Just make sure you keep the invoices / receipts.

    One last point, the HSA belongs to you, so you can move money around between HSA accounts by rollovers and/or transfers if your company’s HSA account has a bad selection of investments or high fees. But do watch for fees though as many HSA accounts charge service fees.

    But I am curious what tips my insurance company will provide about keeping my car costs down 🙂

    Best wishes and wishing you a happy and healthy 2017!
    -DL

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