If your insurance plan qualifies for an HSA or Health Savings Account, there are a number of benefits to establishing one. Unfortunately, there is so much industry-speak involved in reading up on these accounts, it can be difficult to understand the actual benefits. Here are 3 major reasons to use a Health Savings Account.
- Tax Deductible – Any contributions made are either with pre-tax dollars if taken by the employer or are tax deductible if made with after-tax dollars. Either way, they bring down your adjusted gross income and save you money. Then, when the money is needed for a medical expense later, you can use the funds plus any accumulation, tax-free.
- Reduce Healthcare Costs – By using an insurance plan which utilizes an HSA, you will almost always have lower premiums than other available options. You can then take the amount saved monthly in premiums and put it into the HSA for later use. This helps bring down the cost of healthcare, allowing you to only use the money when it’s needed.
- Save for Retirement – Some savvy investors have begun using HSAs as a supplement to their retirement savings. So long as the funds are not touched until after the age of 65, there will be no penalty on withdrawals from the HSA if used for non-medical purposes. Instead, the owner of the account will pay ordinary income, just as they would with a Traditional IRA or 401k. But if you spend any money on health care during the year, it can count against the withdrawal and allow you to take that withdrawal tax-free. That can make it a better investment tool than an IRA.
Before setting up an HSA, consult your insurance specialist who can go over the pros and cons for you. And before establishing one for long-term savings, consult your CPA. But are yourself with this information to have a meaningful, serious conversation about the benefits of HSAs.