If your company offers you a Health Savings Account (HSA), you should definitely be taking advantage of it. If your company does not, it is something you may want to look into opening.
A Health Savings Account is a tax-advantaged savings account that you can use to pay for or pay yourself back for medical expenses. In order to qualify for an HSA, you need to be covered by a high-deductible health plan.
HSAs are meant for everyone, but are especially beneficial to millennials. This is because a high-deductible health insurance plan tends to be a popular choice for our age group, because it costs less monthly and we tend to go to the doctor’s less than those in older generations (knock on wood that we remain healthy!).
It is also especially great for millennials as we have decades for the investments into our HSAs to grow, which I’ll get into in a little bit.
Why You Should Take Advantage of a Health Savings Account
They Are Triple-Tax Advantaged
Contributions that you make to your HSA are tax-deductible. This means that if you are offered an HSA through your employer, you can have deductions taken out of your paycheck pre-tax, so you won’t even feel the money coming out!
Plus, both gains made on investments and withdrawals are tax-free as long as the money is used to paid for qualified medical expenses. Just be sure to keep all receipts to medical payments made, in case any questions arise while you are filing your taxes.
You Can Invest The Money
Once you reach a certain amount of money in your HSA account, you can invest it, tax-free. This means that if you don’t immediately need to use the money in your account to pay for something or reimburse yourself for something that you paid for, you can invest it and watch it grow. You are able to take some money out of these investments at any time, tax-free, if you need the money back in your account to use it.
There Are So Many Qualified Expenses
An HSA is not just for paying co-pays or balances from doctor’s visits — the money from this account could be used for so much more. Medical, dental, and vision services are all covered.
For instance, you can use your HSA money to pay for your contacts or a new pair of prescription glasses. The money can even be used for things like LASIK vision surgery (that’s what I used mine for!) as well as smaller things you can buy from Amazon or a drugstore, like artificial tears. Some every items such as sunscreens and band-aids are also included.
There is an official HSA store where you can browse what everyday items count as qualified expenses that you can use the money in your account for.
Many Employers Offer Contributions
Who doesn’t love free money? Many employers will offer either matching contributions to an HSA account or “dollars” that you can earn for your HSA account by completing various wellbeing tasks.
Just like an employer will give you X amount towards your 401K, many will offer something similar towards an HSA account. You are missing out on extra money if you are not taking advantage of this!
You Can Reimburse Yourself at Any Time
As long as it is for a qualified medical expense, you can pay yourself back for any out of pocket expenses at any time. That’s right, it does not matter if it’s a week from now, a month from now, a year from now, or multiple years from now.
Be sure to save your receipts in case any questions arise during tax time. But, it’s your money, and as long as it’s for a covered expense, you can pay yourself back for it whenever.
Taking advantage of a Health Savings Account is a no-brainer. It is important to note that there is a contribution limit each year that cannot be exceeded.
An individual can contribute up to $3,600 maximum to their HSAs. An individual who has family coverage can contribute up to $7,200. If your employer does provide a match or any sort of contribution to your account, it will count towards the maximum allowance.
Once you reach the age of 65, you can make withdrawals from your HSA account without any penalty. However, if you want to use this money for something that is not a qualified medical expense, it will be taxed just as an ordinary income would be taxed.
I will admit that when I was first introduce to a Health Savings Account, I thought to myself “I’m healthy, I don’t need to contribute the max each year to mine.” Boy do I wish I could go back in time and shake myself!
With it’s triple tax-advantage, and the ability to invest the money and pay yourself back at any time, maxing it out is a smart move, assuming you have the budget to be able to do so!