Is an HSA right for me?

A Health Savings Account (HSA) has plenty to offer, but it's a good idea to see if it fits your health and financial wellness needs.

Chart showing if an HSA with an HDHP is right for me? The answer is yes if you: want to save on health insurance premiums, have the discipline to save on a regular basis to cover higher out-of-pocket costs, are looking for tax advantages, are interested in saving for future health care expenses including in retirement and worry about losing unused dollars set aside in a Flexible Spending Account at the end of each year. Read more about the benefits of an HSA to see how they could support your goals.
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Potential to save money on health insurance premiums

To contribute to an HSA, you must be enrolled in a high-deductible health plan (HDHP). The idea of a high deductible might seem daunting at first, because you will need to have cash on hand to cover any out-of-pocket expenses before meeting the higher deductible. However, opting for a higher deductible usually means you are paying a lower premium—so, you could end up saving on your monthly insurance payments.

Learn more about an HDHP

When you pair an HSA with your HDHP, the savings you experience with lower premiums can be banked in your account and put toward out-of-pocket expenses like deductibles, copayments, prescriptions and more. And, any unspent dollars will roll over for future health care expenses.

Plan ahead and set goals

If you decide to take advantage of the lower premium that comes with an HDHP, you may wonder how much to contribute to an HSA so that you can cover the deductible and other out-of-pocket expenses. Here are a few suggestions that can help you select a monthly contribution amount that could work with your needs:

  • Consider contributing enough to pay your plan deductible. For example, if your HDHP deductible is $2,100, contribute $175 per month to reach your plan deductible amount in one year.
  • If you have a choice between a traditional health plan and an HDHP, contribute the difference in the medical premiums. For example, if the traditional plan premium is $450 per month, and the HDHP premium is $200, save the $250 difference into your HSA. At the end of 12 months, you'll have contributed $3,000 to help offset the higher out-of-pocket expenses.
  • Contribute the maximum allowed by the IRS each year, if you can.

As you consider how much to contribute to your HSA, it's important to look beyond the current year. Use the HSA calculator to understand the impact of saving and spending, and to see how much you can accumulate to help pay for health care expenses in the future—including retirement.

Realize the potential tax benefits

An HSA offers you a triple tax advantage1, and those savings can really add up over time. Consider the three ways you could benefit:

  1. Contributions made via payroll deductions use pre-tax dollars and contributions you make directly to your account are eligible tax deductions.
  2. Any interest or earnings from your account grow tax-free.
  3. Withdrawals for qualified medical expenses are tax-free.

Learn more about the tax benefits of an HSA

Put your money to work for your future

While an HSA earns interest like a regular savings account, an HSA also includes an investment feature that allows you to invest a portion of your balance in a range of mutual funds for potential account growth over time. Taking advantage of this feature could help you build your balance so that you're better prepared to pay for qualified medical expenses when needed this year, next year or even in retirement when you are likely to have higher health care expenses and less income.

Discover the potential of investing with your HSA

Make the most of your retirement savings

While you may not initially think of an HSA as part of your retirement savings strategy, it could become an important part of your financial plan. Using the money you save in your HSA to pay for health care costs in retirement can help you save on taxes and preserve more of your traditional 401(k) retirement savings for lifestyle and other expenses. Similar to a traditional 401(k), you can make tax-free contributions to an HSA and your account grows tax-free. Unlike a traditional 401(k), the HSA withdrawals you make for qualified expenses are tax-free. If you're planning to pay for health care costs during retirement from your traditional 401(k), those withdrawals will be taxed. Saving in both accounts could give you more buying power for health care costs during retirement.

Learn more about how an HSA works with a 401(k) to help you plan for retirement

Don't worry about "use it or lose it" rules

If the idea of "use it or lose it" health accounts concerns you, you may be pleasantly surprised to learn this notion doesn't apply to your HSA:

  • There's no deadline for using the money like there is with some other health accounts such as a Flexible Spending Account (FSA). Your HSA balance rolls over year after year, and can keep growing.
  • Your HSA money is always yours. You don't lose your HSA if you get a new job or leave the workforce; you can take it with you.

Bottom line

As you continue to learn more about how an HSA works and the reasons to pair an HSA with an HDHP, the next step is to consider the benefits in context of your own individual situation and needs. The information in this article and the links to additional resources can help you understand: "Is an HSA right for me?".

1Potential Tax Advantages: You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. Any interest or earnings on the assets in the account are tax free. You may be able to claim a tax deduction for contributions you, or someone other than your employer, make to your HSA. Bank of America recommends you contact qualified tax or legal counsel before establishing an HSA.