Why Open A Health Savings Account?
Health Savings Accounts (HSAs) were designed to help you take more control of your health care. With an HSA, you can save money tax-free to pay for almost any medical cost.
So why should you open a Health Savings Account?
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Saving Money On Insurance Coverage
Does that mean you'll pay more for health insurance? Not necessarily. High-deductible plans feature lower monthly premiums than most other kinds of coverage. And as long as you remember to put a little money aside each month, it isn’t difficult to save up enough to cover your deductible.
Most HDHPs provide affordable coverage for routine and preventive care — including doctors' office visits, annual physicals, and wellness care.
Some HDHPs “waive the deductible” for this kind of care, where you'll only have to pay a low copayment. The savings in your HSA can be used for preventive care copayments.
HSA Tax Benefits
All of your funds in a Health Savings Account are completely tax-free. There are two ways to deposit tax-free savings in an HSA:
- If your employer has a fringe benefits program, you may be able to deposit funds into an HSA directly from your paycheck. The HSA funds go in before income taxes are taken out, so all the money in an HSA is tax-free.
- If your employer doesn’t have a fringe benefits program, you can claim your HSA deposits as a deduction on your next federal tax return.
When you withdraw money, you won't get taxed as long as it pays for a qualified medical expense.
With these tax benefits, it's like the federal government is helping you pay for your health care costs.
HSAs Vs. Other Health Accounts
Before HSAs came around, people saved money for health care expenses using Flexible Savings Accounts (FSAs) and Health Reimbursement Arrangements (HRAs).
These other types of accounts are much more restrictive than HSAs. For example, the money you don't use in an FSA is forfeited at the end of the year.
With a Health Savings Account, the money you save is completely yours. At the end of the year, you won't have to forfeit your savings — and you earn interest just like a regular savings account.
Even if an employer contributes money in your HSA, it's yours to keep.
There's another HSA benefit: when you turn 65 years old, money in your HSA can be withdrawn for any reason — even if it's not health-related. So not only does an HSA give you a way to pay for health expenses, it also gives you another way to put money aside for retirement.
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