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. Here are some things to think about when deciding if an HSA is right for you.
Saving money on health careLet's assume you want to save money on health care. Often that means participating in what's known as a High Deductible Health Plan (HDHP), which can be paired with an HSA. (You must participate in a HDHP to take advantage of an HSA.) The idea of a high deductible might seem scary at first, but the bottom line is that higher deductibles usually mean lower premiums. It's a scenario you may already be used to if you have insurance for your car or home.
The savings you enjoy in lower premiums with an HDHP can be banked in your HSA to put towards out-of-pocket expenses like deductibles, copayments, etc. Any extra dollars you don't end up spending you can save in your HSA for future health care expenses.
And remember, when it comes to a high deductible health plan, preventive care such as a physical exam is generally covered at 100%, with no out-of-pocket charge. Keeping up with your preventive care is smart and may help you avoid costly illnesses in the future.
Plan ahead and set goalsIt's great to be able to take advantage of the lower premium, but you also should be prepared to cover the deductible and other out-of-pocket expenses. Here are a few suggestions to help:
- First, see how much you can save. You can use our calculator here.
- Try to save 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.
- Save the difference in your medical premium. 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.
- Contribute the maximum allowed by the IRS each year, if you can.
Reducing your taxesIf you're looking for ways to lower your taxes, an HSA offers you a triple tax advantage:
- Contributions going in to your HSA are not taxed.
- Interest earned on the funds in your HSA is tax-free.
- Any withdrawals for qualified medical expenses are also tax-free.
Yes or no to an HSA?
6 things to consider
Typically the HDHP’s are lower.
Compare to other plans
2. Bank the savings
Contribute $3,000 each year and after 20 years, you could have more than $83,000.*
If the cost is $250 less per month, you’ll save this amount in a year.Put that into your HSA for out-of-pocket costs.
3. Reduce your taxes
Any contributions you make to your HSA are fully deductible, up to an annual maximum.**
For example: if you are in the 25% tax bracket, you’ll save this amount in taxes(25% of $3,000).
4.Factor in the deductible
The amount you can
spend once you meet
If your deductible is $1,500 you can put half of the $3,000 savings towards the deductible.
5.Take the match
If your employer matches your HSA contributions, that’s a nice plus!
This is the most you will pay in any given year.**
*Based on a $3,000 annual contribution to an HSA and 3% interest compound annually.
**$3,400 for individual plans and $6,750 for family plans in 2017. ***The plan's out-of-pocket limit must be no higher than $6,550 for an individual plan or $13,100 for a family plan.
Putting more towards health care in retirementWhile you may not initially think of an HSA as a retirement savings strategy, it can become a key part of a solid financial plan. You will need to pay for health care costs in retirement and the triple tax advantage helps you stretch your retirement savings dollars even further to pay for medical costs. What's more, if you actively manage and invest your HSA, you improve the chances that your account will grow because:
- You can invest your HSA balance in mutual funds.
- You can let your HSA balance keep growing tax-free, year over year, and use it to help cover your health care costs in retirement, including Medicare premiums.
No "use it or lose it" hereIf you feel pressured by the idea of "use it or lose it" health accounts, you don't need to be with an 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.
- Plus, 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.