7 Important Benefits of Having a Health Savings Account

What is a Health Savings Account?

A Health Savings Account is an account that you are able to put money into from your paycheck before taxes. You can only have it if you have a high-deductible health plan – a medical insurance plan with a high deductible and relatively lower premium.

The deductible is the amount of money you have to pay before the health plan kicks in. Those lower premiums could be attractive, but if you expect a lot of frequent doctor visits, then you are better off with a lower deductible plan.

How does a Health Savings Account work?

For 2023, the contribution limit for individuals is $3,850. For married couples, it is $7,750. You do need a high-deductible health plan to be eligible for an HSA, but for almost everyone out there, it is worth it.

Contributions to a Health Savings Account are tax-free. They can either come out of your paycheck automatically before tax, or you could contribute out of pocket as a write-off.

I recommend having your employer take money out of your paycheck before it is taxed and have that money go directly into a savings account. Afterward, you will be able to invest that money or use it for eligible medical expenses.

What are the benefits of a Health Savings Account?

1. HSA contributions are tax-free

Some people like to gather up cash, invest it after it has been taxed, and then write it off on their taxes later. It takes a lot of discipline, and for most people, it is more work than it is worth. Meanwhile, HSA is not taxed, so you can save a lot of time.

2. HSA does not expire

FSA money (flexible spending accounts) have a small rollover year to year, and if you don't use it, you lose it, but Health Savings Account money does not expire, that is your money forever.

Moreover, you could have an invested account of money that grows tax-free and then use it later on in life for all kinds of expenses.

3. HSA withdrawals are not taxed

When you use a Health Savings Account for qualified medical expenses, they do not get taxed. The list is extensive and even longer after the pandemic. So consider what you could be using HSA money for without having to pay the tax on those withdrawals from the account.

To sum up, you are not taxed as the money goes in, it grows tax-free and you are not taxed as the money goes out. This is what makes HSA a great savings tool for you if you expect to have medical expenses at any time in your life.

4. Others can contribute

Some employers provide a monetary incentive, and even family members can contribute to your health savings account. If you are married, the contribution limit is doubled.

So remember, it is not just money that is coming out of your paycheck. There are a lot of ways that you can grow your health savings account. Also, you can contribute regardless of your income, unlike a Roth IRA which has income limits for your ability to contribute.

5. Balance invested

When your HSA has a balance, you can invest that just as if it is a normal brokerage account, only with tax-free gains. You can invest in index funds, or some growth or value mutual funds. If you want it to be risky, you could just throw it all into one stock.

You can weigh the benefits and have your advisors help you find what you should be investing in. In short, your HSA money is not just a savings account that sits in cash and gets eaten away by inflation year over year, but rather it can be invested, and the growth is tax-free.

By investing with a Health Savings Account, you will be ahead of someone who just takes the money, puts it into the stock market, and pays taxes.

6. Unlimited portability

The Health Savings Account is yours, and it is going to follow you wherever you go. Even if you leave your job, you can still access and use your HSA forever. There is a popular misconception that if you do not use the money, it is going to go away, but this is only true for FSA, not for HSA.

7. Convenience with a card

Health Savings Accounts do not have to be difficult. They can be incredibly convenient. Many of them come with a debit card that you can use to pay for medical expenses directly.

When you show up to the doctor and they announce your balance, you can just swipe your card and you are done. You do not have to worry about managing a whole bunch of documentation.

Alternatively, if you get points for paying with your credit card so this is what you want to do, you can reimburse yourself anytime later, as long as the account was open when the medical expense occurred and as long as you still have that receipt.

Health Savings Accounts

To sum up, a Health Savings Account is a great tool for managing medical expenses and investing, and I highly recommend you look into it if you have not yet.

Do you have a Health Savings Account? What do you usually use it for? Share your experience in the comments!