If you’re covered by a high-deductible health plan, you’re eligible to participate in a health savings account. These special accounts allow you to set aside funds for use specifically for approved healthcare related expenses. Because of the way these accounts are structured, owners reap many HSA benefits in their financial world.
Individuals are permitted to contribute up to $3,450 and families may contribute $6,850 to their HSA in 2018. These contributions may be made directly from your paycheck with help of your employer, or you may allocate money into your HSA on your own. Most financial advisors recommend anyone eligible for a HAS contribute to it, because of four significant advantages:
- Tax-free income: Like contributions to your traditional IRA, contributions to a HSA are made on a pretax basis. Put simply, it allows you to effectively spend money on healthcare expenses that you haven’t been taxed on, increasing your spending power.
- It’s Yours Forever: That money you put in an HAS – and the matching contributions your employer puts there – is your money. When you switch jobs or change to a non-qualifying healthcare plan, it’s still available for you to use. You contributions roll over from year to year, so it’s not like a use-it-or-lose-it traditional benefits plan.
- It Transforms to a Retirement Account: If you’re over 59 1/2 years old, you can withdraw money from your HSA as if it were a traditional IRA. You’ll be taxed on the amount as income, but it allows you to tap into unused medical savings later in life.
- Maximum Flexibility: Your HSA can be used to cover any qualifying medical expenses for anyone in your family, and may be spent now, or saved for a rainy-day medical emergency.
You’ll want to be careful to spend HSA money only on qualifying expenses. If you use it on expenses that don’t qualify, you’ll owe taxes on the amount spent and an additional 20 percent penalty – which can end up being a penalty of more than 40 percent.
Start your HSA today with Points West Community bank and reap all the HSA benefits. Contact your nearest branch to get started.