Let’s face it – despite our best intentions (eating a balanced diet, exercising regularly, taking a daily multivitamin), sometimes health can take a turn for the worst, and it can be completely out of our control. That can be pretty scary. What can be even scarier, though, is the healthcare costs that come along with it.
Even if you have health insurance, there are often deductibles and additional expenses that pop up that insurance won’t cover. In order to safeguard against those unexpected costs, some individuals open up an HSA account.
But what exactly is an HSA, and is it the right financial move for you? Don’t stress over the answer – the Finance Opinion team has done the research to help you weigh the pros and cons and broken it all down in this post.
What is an HSA?
A Health Savings Account (HSA) is exactly how it sounds in that it’s just like a personal savings account, but the money accrued in an HSA can only be used to pay for healthcare expenses.
One of the biggest advantages of an HSA is that it is tax-free, meaning any money deposited into it cannot be taxed. Individuals can determine how much money they want to set aside toward HSA savings every month or year. If your employer offers an HSA plan (some even match contributions to them like they would a 401k), you can even contribute a percentage directly from each paycheck.
While tax-free savings is great, it’s important to note that in order to qualify for an HSA, you must switch to a high-deductible insurance plan, which ranges, on average, from $1,400 for an individual to $2,800 for a family.
When an HSA May Be a Good Fit for You
If you’re in or near retirement, an HSA may make sense because the money saved could be used to offset the costs of medical care after retirement, which can exceed the overall yearly deductible by thousands.
Additionally, if you’re generally healthy and you want to save for future health care expenses, an HSA could be a good option, especially without the stress or worry of potentially having to pay a high deductible. And, because some HSAs pay interest on the unused money in your account, you can accrue additional tax-free earnings – a nice boost to your savings!
However…
When an HSA May Not Be the Best Option
If you’re in poor health, multiple medical expenses throughout the year could mean high deductible costs that far exceed the tax-free benefits. If you have to front the cash for the deductible, that could surely put you in debt – or even at risk of it – you may want to consider other options (like a Roth IRA).
Additionally, if you think you’ll need to withdraw from your HSA, you should be aware that the money you withdraw will no longer be tax-free if it’s not used for medical expenses.
Finally, whether you decide if an HSA is right for you or not, it’s not your only option. From CD Accounts to 401(k)s, there are plenty of choices when it comes to safeguarding your health – both of your body and your financial future – and we’ll be here to help provide you with the information you need to decide on the right strategies every step of the way!
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The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, we advise you to consult with a licensed advisor.
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