5 Important Benefits of Your Health Savings Account
Your HSA Can Bolster Your Savings, Your Retirement Plan, and More| By: Randall E. White, CFP®, RICP®, CRPC®, CMFC®
If you qualify for a health savings account (HSA), it’s a good idea to understand all the benefits it can provide. It can be a valuable tool to combat the high costs of healthcare, which are only continuing to rise. Couple this with the fact that none of us can predict when we will need care as we age, and healthcare becomes a variable that poses a significant threat to your financial security.
HSAs afford the opportunity to take control even in the face of unpredictability. Still, they are largely underutilized. So, if you have an HSA or you’re considering getting one, here are five things you should know.
#1. Health Savings Accounts come with triple-tax benefits.
Probably the most appealing benefit of a health savings account is that it’s the only triple-tax advantaged savings account available. You can contribute money into the account tax-free, your funds grow within the account tax-free, and you’re not taxed on any withdrawals you make from the account – so long as you’re using the money to pay for qualified medical expenses. While your contribution amounts are capped each year by the IRS, maximizing them is a great way to make the most of the tax benefits an HSA offers.
#2. After a certain age, HSAs can act as another retirement account.
While it’s true that any withdrawals you make from an HSA to cover medical expenses are tax-free if you use that money for anything else you’ll not only have to pay income tax but you’ll be hit with a 20% penalty fee, as well. However, this only applies if you are under age 65. Once you reach this milestone, the penalty disappears, and your HSA becomes a lot like a traditional IRA. You can still use your HSA funds to pay for medical expenses tax-free, but you’ll also have the option to use it to buy anything else, too – you’ll just pay income tax on the withdrawals.
#3. You can invest the money in your HSA.
When it comes to growing the money in your HSA, you have a few options. You can choose to invest your funds in stocks, bonds, or mutual funds, or you can keep your money in a basic interest-bearing account. Both of these options provide your money the opportunity to grow, it’ll just depend on your personal situation which is best for you.
If you’re planning to use your HSA to cover ongoing healthcare costs, then keeping that money in an interest-bearing account is probably going to be the better option for you. However, if you have no immediate plans for that money, then investing some of it may prove to be incredibly beneficial. It’s important to note that not all HSAs allow you to invest your funds, so you’ll want to check with your HSA custodian to see what options are available to you.
#4. HSAs offer flexibility.
Unlike a health insurance plan or a flexible spending account, HSAs aren’t tied to your employment. Instead, you own the account. So, no matter where you’re working or why you leave your job, you can take your HSA with you wherever you go. Additionally, HSAs don’t have a use-it-or-lose-it feature, meaning any money you invest into the account will carry over from year to year and continue to grow. Even better, if you choose to cover medical expenses out of pocket now, you can take a tax-free distribution in the future in the amount of said expense – just be sure to save your receipts so you can verify your distributions.
#5. HDHP deductibles aren’t necessarily more expensive, and an HSA can help offset the costs.
One of the biggest catches with the HSA is that you have to be enrolled in a high-deductible health plan (HDHP) in order to qualify. However, that doesn’t necessarily mean that your deductible will be any higher than it would be with a different plan. In fact, more often than not, the maximum out-of-pocket limits for HDHPs are lower than they are with other plans – and having an HSA allows for you to plan for and cover any high deductibles that you may find with an HDHP so that you don’t have to dip into your savings or emergency fund.
Ready to take advantage of all the benefits of your health savings account?
When looking at the benefits and opportunities an HSA provides, it’s easy to see why they’re seen as the “Swiss army knife” of savings accounts. They offer options to bolster your wealth and strengthen your retirement plans. If you’re enrolled in an HDHP and have been considering whether an HSA is the right choice for you, think through the advantages above and see which may apply to your circumstances. If you already have an HSA, be sure that you’re taking full advantage of the opportunities it offers.
At TriCapital Wealth, we firmly believe that having a financial planner you can trust is essential as you plan and implement financial strategies to achieve your goals. If you’d like to talk with one of our professionals about how an HSA may work to supplement your retirement plans, please contact us today.
Securities offered through Triad Advisors, LLC, member FINRA/SPIC. Advisory services offered through TriCapital Wealth Management, Inc. TriCapital Wealth Management, Inc. is not affiliated with Triad Advisors, LLC.