Everything You Need to Know About Health Savings Accounts
One of the best financial decisions to make is to invest in your future.
There are multiple ways to do so through options like Individual Retirement Accounts or Savings Accounts. However, one investment option that many are guilty of overlooking is a Health Savings Account (HSA). In fact, you might be asking yourself now, “What is a health savings account?”
Explanation of HSAs
An HSA is simply a savings account with the purpose to invest pre-taxed money to cover qualified medical expenses. In order to qualify though, an individual must be enrolled in a high-deductible health insurance plan as defined by the government.
How HSAs Work
At the beginning of each year, you decide how much to contribute towards your HSA. However, there are some limitations set by the government. For individuals, you cannot exceed $3,400 and for families, you cannot exceed $6,750. Once adults are over the age of 55 though, they are then allowed to put an additional $1,000 in their HSA.
Once you have set your amount, a debit card linked to that account would be sent to you to then use for any eligible medical expenses. This would include items such as deductibles and co-pays.
You can, of course, use the HSA for other expenses, but you will be subject to pay the income tax and, if you’re under 65, will also have to pay a penalty fee. Additionally, once over the age of 65 and enrolled in Medicare, you are no longer able to contribute to your HSA. Before coming to any notions about HSAs though, let’s discuss its varied benefits that many are completely unaware of.
Key Benefits to HSAs
Let’s start with the fact that HSAs allow for your balance to roll over from year to year, which means you won’t lose any of the assets you put towards it. As for no longer being able to make contributions over the age of 65, well, you don’t just lose the existing money in your HSA. Instead, you are able to use that amount for any out-of-pocket medical expenses. Or if you wish to pay income tax, you’re also able to use those assets on other ineligible expenses.
Some of the greatest aspects of HSAs are the tax advantages. Since contributions are pre-tax/ tax-deductible, this means the money in the account will grow tax-free and can be withdrawn tax-free, so long as its guidelines are met. In addition, HSAs are not subject to the Federal Insurance Contributions Act, which equals to about 7.65% in extra earnings towards your HSA.
Another fantastic advantage to HSAs is that, depending on how it’s created, they can be used to generate more money through investing in other mutual funds. It’s essentially like a 401 (k) or IRA where the assets in the account can be used to invest in other mutual funds. Due to the great tax advantages of HSAs, you can imagine why utilizing it as a means for investment is so appealing.
Invest In Your Future with HSAs
Whether you want to be covered for potentially costly medical bills, or have a tax advantaged investment tool to help plan for a comfortable retirement, an HSA is a wonderful tool to achieve either or even both. The fact is investing in your future is one of the best decisions you can make. HSAs allow for the flexibility to invest in your health as well as your financial success all while offering fantastic tax advantages.
Now that you have a better comprehension on how HSAs work and the benefits they bestow, click here to getting started on opening your own HSA with Fresno First Bank!