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Navigating health insurance plans can be confusing. One health insurance product that’s relatively easy to understand is a health savings account, or HSA. This type of account can help account holders save money on the costs associated with their healthcare.
What is an HSA?
HSAs are like any other savings account, except they can be used for medical, vision and dental expenses. HSAs are tax-advantaged, meaning that income can be deposited into an HSA before it is taxed. HSAs can only be opened and used in conjunction with a high-deductible health insurance plan, or those with a deductible of at least $1,300 for an individual or $2,600 for a family.
HSA details and eligibility requirements
Although HSAs have contribution limits, they’re advantageous in that the savings accumulated can be used to pay for noncovered, qualified medical expenses, such as copays, vision and dental care and even deductibles.
HSAs may be established through an employer-sponsored insurance plan or through a bank or other financial institution. To qualify, a person must be under the age of 65 and have a high-deducible health insurance plan.
What are the advantages and disadvantages of HSAs?
There are advantages and disadvantages to HSAs. HSA account holders can control how their saved money is spent, and there’s no risk of losing the money at the end of the year because it rolls over. Taxes are not paid on money going into the HSA. In addition, employers can contribute to HSAs, and account holders do not lose their balances when they change jobs.
Disadvantages include the challenge of setting aside money to put into the HSA, especially if finances are tight. One who has certain medical situations that are urgent may find that budgeting for an HSA is impractical.
A retirement saving vehicle
In addition to the other benefits mentioned, HSAs can be used as a way to invest in retirement. The resource NerdWallet, which offers financial tools and objective advice to help people understand their options and make the best possible decisions, says an HSA is a good retirement savings option, especially for high-income earners who can’t make deductible contributions to a traditional IRA or any contributions to a Roth IRA. HSAs can help offset healthcare costs and even help with long-term financial planning.
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