Photo Courtesy: Ken Teegardin

 

If you haven’t heard of health savings accounts, or HSAs, now is a great time to learn. An HSA allows for tax‐advantaged savings that can be used to pay for medical expenses now or in the future. In order to qualify for an HSA, you must be enrolled in a high‐deductible health insurance plan. High deductible insurance plans offer low premiums in exchange for the insured person or family taking on high deductibles.

Here are four reasons why HSAs are a powerful new way to invest for the long-term costs of health care:

  1. HSAs are Triple-Tax Free

You can contribute to them with pre-tax money, invest in them on a tax-free basis and withdraw from them without paying tax on the distribution (as long as it’s used for qualified medical expenses). Unused funds can also be given to designated beneficiaries for their health care needs.

  1. HSAs Can Stretch Retirement Savings

Health care is one of the biggest expenses in retirement. Taking advantage of an HSA can give you an edge when it comes to retirement savings. In 2017, you can contribute up to $3,400 to an HSA for yourself, or $6,750 for your family (see chart). Unlike a flexible spending account, which requires “use it or lose it”, funds contributed to an HSA can accumulate year over year if you do not use it. So if you make contributions to an HSA now, it can go a long way toward paying health costs in retirement.

  1. While your 401(k) Is Tied to Your Employers, your HSA Is Not.

As long as your health plan meets the deductible requirement and permits you to open an HSA, you can open one anywhere, so consider shopping around. Understand what options are available in the HSA and ask to see a full schedule of fees and charges. Inquire with your employer if they offer an HSA. Many do and some even offer matching contributions. Unlike some employer contributions to a 401(k) plan, all HSA contributions immediately belong to you.

  1. You Can Often Choose How to Invest your HSA Assets

Depending on where you set up your HSA, you’re not limited to keeping it in cash. Many companies offer a lot of choice when it comes to HSAs and investments can range from CDs, stocks, bonds, and mutual funds to alternative investments, real estate and precious metals. Talk to your financial advisor about which investments make the most sense for you, given your situation.

For more detail, see IRS Publication 969, or consult your financial advisor to find out if you qualify and to determine if an HSA is right for you.

Health Savings Accounts (HSA) Contribution and Limits
2017
HSA Contribution Limit Single: $3,400

Family: $6,750

HSA Catch-Up Contributions* $1,000
HDHP Minimum Deductible Single: $1,300

Family: $2,600

HDHP Maximum Out-of-Pocket** Single: $6,550

Family: $13,100

*Catch-up contributions can be made anytime during the year in which the participant turns 55.

**This includes deductible amount, co-payments and other non-premium payments.