How a Health Savings Account Fits into Your Financial Planning Toolbox
We hear a lot lately about the rising costs of healthcare, don’t we?
A recent report published in Health Affairs states that healthcare expenditures will represent almost 20% of the GDP by 2025. So of course, Americans are looking for ways to save on these costs and plan for medical costs in their retirement. For many, a Health Savings Account (HSA) is an excellent option.
The word is out about the advantages of Health Savings Accounts as they have grown extensively in popularity over recent years. A study by Devenir, reports that between the period between December 31st, 2015 and December 31st, 2016 assets held in HSAs reached 37 billion dollars across 20 million accounts. This is a reported increase of 22% in assets and 20% in the number of accounts year over year.
Workers are beginning to realize that when they construct a union between an HSA and a high-deductible health plan (HDHP), they can cover those extra out-of-pocket costs that insurance will not cover while at the same time putting some of that money away for other needs they may have, including retirement. The list of eligible expenditures for the HSA is inclusive, so that means you’ll have plenty of opportunities to use your funds.
Let’s take a quick look at a few of the reasons why HSAs have become so attractive to so many.
It’s Yours. It’s really Yours
HSA accounts are different than counterparts the Flexible Spending Account (FSA) and Health Reimbursement Arrangement (HRA) in that the account belongs to you, not your employer. This means that if you end up parting ways with your job for any reason, you can take your funds with you.
Tax-Free, my Friend
Regardless of whether you contribute to you HSA via payroll deduction or on your own, these funds are deposited pre-tax. First, let’s consider the deposit limits for your HSA account. For 2017, the limit that a single individual can contribute is $3,400.00, and the limit for a family is $6,750.00. That’s a lot of your hard-earned money missing the tax crunch. Also, when you decide to withdraw money from these accounts, it is done tax-free. That’s no tax on both sides of the transaction.
Not bad, right?
Feed, Water, Grow
We’ve mentioned the tax exclusion for the deposits and withdrawals from your HSA, but what about investing? Take a guess. Yep. Returns and interest gained on an HSA account can are withdrawn tax-free as well. This makes your HSA a “triple tax advantage” as it bypasses taxation as funds are put in, invested, and withdrawn.
Others Can Chip In
Many employers offer benefit packages that include matching, to a certain limit, the contributions that you make to your HSA. Additionally, family members can also deposit funds into your HSA account if they are eligible. To be eligible, they must also participate in an HDHP and not be insured under any other plan.
And You Thought Rollover minutes were great
Unlike the rules that harness FSA holders, there are no “use it or lose it” stipulations on HSA accounts. Basically, if you don’t use the money in your HAS account by the end of the year, you can carry it forward to the next year, letting it grow into a sizeable nest egg to be used now or in your golden years. If you decide to use these funds after age 65, you don’t have to use them for medically related expenditures only. You can use the money for non-medical expenses without penalties, but you will have to pay taxes on these withdraws.
Do you Qualify to Set up an HSA Account?
According to the IRS, to establish an HSA in 2017, you must:
- Not be enrolled in Medicare.
- Be enrolled in a High Deductible Health Plan (HDHP)
- Not be covered by any other insurance plan, with minor exceptions
- Not be declared a dependent by anyone on their 2016 tax return.
Overall, it’s clear to see why so many people have decided to take advantage of the benefits HSAs offer. While no savings tool is perfect, HSAs can certainly be a good fit for many.
For more information on how HSAs fit into your portfolio, contact FamilyVest today for a consultation!