What if I told you that you could get a discount on your health expenses? That’d seem pretty solid, right? Health expenses suck because they seem to take away from all the other things we’d rather spend money on. That’s why HSAs are so great. They give you a discount on those things we don’t like to pay for.
What is an HSA?
You’ve probably heard the acronym HSA, or maybe FSA, at some point in your life (are you sick of all the financial acronyms yet?). HSAs can be great tools for different reasons depending on your individual situations and where you’re at in your financial journey.
HSA stands for Health Savings Account, which is a tax-advantaged account available to individuals on a high-deductible health plan (HDHP). It’s a pre-tax account that allows you to save money on your health expenses.
You, and possibly your employer, contribute pre-tax dollars to this account which can be used on qualified medical expenses, which can be things as simple as over-the-counter drugs. You can get more details about what qualifies here.
HSAs can act as your default health expenses bucket. Bonus points for those of you who budget for this already.
Important – If you’re not on an HDHP, you do not qualify for an HSA. You can, however, qualify for an FSA which is similar but has a few more restrictions.
Also, check your benefits or talk to your HR partner to see if your employer matches or contributes to your HSA. Just like a 401(k) match, this is free money!
Getting Started
We’re all going to run into situations where we need to make a visit to a clinic or the doctor. Putting dollars into an HSA fund can be a great way to save money when these situations arise, e.g. if you fall in the 25% tax bracket, you’re getting a 25% discount on your health expenses.
One of the best things I did was contribute to an HSA early on in my career to help with these costs when they did arise. HSA funds roll over from year to year, unlike its cousin the FSA which currently has a low limit for the carry-over.
Did you catch that? Any funds contributed to your HSA will be available to use for the rest of your life! Not a lot of downside here folks. Even if you move to a different health plan in the future that doesn’t qualify, you can still use the funds for the same expenses.
Take It a Step Further
One of the underrated things about an HSA is that the funds can actually be invested – beware that it’s not always risk-free. Ideally, you don’t want to invest dollars that you may need within 5 years. I understand that can be difficult to estimate all future medical expenses. Understand your risk and use your judgment, but investing your funds here is a fantastic added benefit.
It’s not over! If you reach age 65 and still have funds in your account, they can be used penalty-free on whatever you’d like! How’s that for a bonus? Your HSA turns into a source of retirement income.
Conclusion
Regardless of where you’re at in age or situation, if you’re on an HDHP, you can gain substantial benefits from contributing to an HSA with very little risk. Additionally, if you’re a younger professional who’s on the HDHP because you’re healthy and it was literally the cheapest option on the list of options, you’re in an even better position to take advantage of this type of account.
