Continuing with our BrightDime Basics Series – Saving Money for Healthcare, we’re talking about Health Savings Accounts (HSA). An HSA is similar to a Health Care Flexible Spending Account (HCFSA); you can pay for health care expenses from this account before taxes, but the HSA has several notable differences.
An HSA is special savings account that allows you to set aside money before taxes to use on qualified health care expenses. It can only be used when enrolled in a high deductible health plan (HDHP) – meaning a health plan with a deductible of at least $1,350 for an individual and $2,700 for family coverage. The HSA is known as the triple tax advantage account: you start by putting your money in the account before taxes. Next, your contributions (as long as you don’t withdraw them) will grow year over year (via interest or interest investment gains) tax-free; and last, when you withdraw money to pay for qualified medical expenses, the money is still not taxed. Read more here on the triple tax advantage of an HSA. An HSA also differs from an FSA in that you own the account (not the employer) so you can take it with you if you change jobs; your balance rolls over every year (no use it or lose it rules); the annual contribution limits are higher; and you can let the balance grow (even investing it) and use the money in the account during retirement to pay for health care expenses.
An HSA is a great tool but may not be suitable for everyone. If you/your family are generally healthy and want a way to save for future health care expenses in a tax efficient manner, it may be a good fit. If you’re not in good health, expect high medical bills, or have a hard time paying a high deductible, it may not be suitable. If you have questions about how to navigate your HSA or FSA, BrightDime can help. Just login and chat with a coach.