Health Savings Accounts (HSAs) are used to pay for medical expenses not covered by a health insurance policy, such as deductibles, co-insurance, or other qualifying expenses. You are eligible to contribute to an HSA if your plan deductible is $1,500 (self-only)/$3,000 (family) and your maximum out-of-pocket is $7,500 (self-only)/ $15,000 (family).
Some employers providing high-deductible health plans will make contributions to an HSA on behalf of their employees. This is beneficial, but you can make it significant.
Here are three reasons why you should contribute to the HSA plan.
Tax-deductible contributions. Just like contributing to a 401k or traditional IRA, your contributions are deductible. You contribute to the plan through a payroll deduction before taxes are calculated, or you contribute directly to the plan and take a deduction when filing your taxes. Time is limited; once you file for Social Security, eligibility ends.
Tax-deferred growth. Money in the HSA that is not used for medical expenses grows tax deferred. Many HSA providers offer investment options, allowing you to invest money that will be used in future years, like contributing to a traditional IRA or 401(k). It gets even better.
Tax-free withdrawals. When the money is taken out of the HSA to cover qualifying expenses, there are no taxes to be paid. It doesn’t get better than this!
Unlike Flexible Saving Accounts, there is no “use it or lose it” restriction. You can leave the money in an HSA until you need it. This is an excellent way to pay for medical expenses during retirement.
An average of over $116,000 in after-tax savings at age 65 will be needed to pay for out-of-pocket expenses for health care per person throughout retirement. Investing in an HSA now can have a significant impact on your retirement spending.
