Should I get an HSA? If you’re pondering over this question, you most likely don’t fully understand what a health savings account (HSA) entails.
Here is a full guide to what an HSA account is; its benefits and disadvantages; and whether it’s right for you or not. Read on to find out if you should consider opening one.
What Is a Health Savings Account?
A health savings account is like a personal savings account that allows you to invest for future medical expenses. The money in this account is used to cater to healthcare expenses and gives you a great chance to enjoy lucrative tax breaks.
When you open an HSA account, you remain in full control of your money. Your employer or insurance company do not manage your funds. That means even if your employer pays for your HSA, you own the account and changing jobs doesn’t take the money from you.
Who Is Eligible to Open an HSA Account?
To be eligible to open an HSA account, you need to be under age 65 and have a high-deductible health insurance plan (HDHP). This is a special type of health insurance plan offered by most providers. As its name suggests, it’s a plan with a high deductible, which is the amount of money you have to pay out-of-pocket before your insurance coverage kicks in.
According to the IRS, a high-deductible health insurance plan must have a minimum deductible limit of $1,350 for individuals and $2,700 for families. It must also have a maximum limit of out-of-pocket expenses at $6,750 for individuals and $13,500 for families. But, specific deductible amounts vary from one plan to the other.
Although these types of insurance plans have high deductibles, their premiums are lower than with traditional policies. Thus they are easier to afford in terms of monthly payments.
If your plan meets the above IRS requirements, you can open a health savings account.
Should I get an HSA Account?
Health savings accounts have various advantages and disadvantages. Just like any other healthcare option, you need to weigh the pros and cons of an HSA account to determine if it’s suitable for you.
An HSA account is an excellent option if you’re young and healthy. If you don’t see yourself incurring any medical expenses soon, it’s best to take a high-deductible insurance plan and save money into an HSA account. You can bank the savings you enjoy in low premiums with an HDHP into your HSA account.
But if you think that you might require costly medical treatment in the next few months or years, and it will be difficult for you to pay a high deductible, an HSA account may not be a good option.
If you’re about to retire, an HSA account may also be beneficial to you. You can use the money saved in it to offset medical bills after retirement.
What are the advantages of a Health Savings Account?
There are several benefits of opening an HSA account. They include:
- Many medical expenses are covered, including medical, mental, and dental health care services.
- You control the HSA account. You determine how much money you want to save and manage how you spend it.
- Others can contribute for you. Contributions can also come from your employer, relative, or friend. But the IRS has limits for contributions each year: that is up to $3,500 for individual plans and $7,000 for family plans.
- The money in your HSA account remains yours even if you change jobs, switch insurance plans, or retire.
- Any money that you don’t spend every year is rolled over to the next year. The cash stays in your account until when you decide to use it.
- The money you put into your HSA account isn’t taxed. Contributions are typically made before Uncle Sam takes a swipe at your income. If you make contributions with after-tax income, you can make deductions from your gross income when filing tax returns.
- If you withdraw money from your HSA account for qualified medical expenses, it’s not taxed.
- If your money in the account earns interest or any other form of earnings, it’s all tax-free.
- Many health savings accounts come with a debit card that makes it easy and convenient to pay for medical bills immediately.
What are the Disadvantages of a Health Savings Account?
Having a health savings account may also come with a few cons. They include:
- A high-deductible requirement poses a challenge. It can be challenging to come up with high out-of-pocket expenses to cover complex medical procedures even with money in an HSA account.
- Illnesses are often unpredictable. Hence it’s difficult to budget for potential medical expenses.
- Pressure or the desire to save more in your HSA account may make you avoid getting medical care when necessary.
- You will have to pay taxes and a 20% penalty if you withdraw money from your account for non-qualified expenses. Or non-medical related expenditure.
- You must keep records to show that your medical expenses are qualified.
How Do You Open an HSA account?
If you qualify for a health savings account, you can find out if your employer offers this benefit. If they do, you can determine the amount of monthly savings to be taken out of your salary and deposited in the HSA account by your company.
If they don’t, you can also open an account with a bank or other financial institution. Some banks offer better interest rates on their accounts, so it’s better to shop around before settling for one. Most financial institutions invest the money in your account in various securities and pay you interest.
Consider Getting a Health Savings Account!
The information above is enough to answer your question, “should I get an HSA?” If you’re young and healthy, this savings option can be an excellent choice for you. You’ll get the chance to pay low insurance premiums; save more money for your future health expenses, and enjoy incredible tax breaks while at it.
Contact us today for any information on health savings accounts!