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Health savings accounts have surged in recent years.
According to theConsumer Financial Protection Bureau, in 2023, 36 million HSAs were reported in the United States.
These accounts hold about $116 billion in assets.
More and more Americans are consideringhealth savings planbenefits to cover qualified medical expenses.
What are the benefits of ahealth savings account, and how could they benefit you?
What Is an HSA?
After age 65, funds can be withdrawn for nonmedical expenses without penalties.
There are specific eligibility requirements for anHSA.
Those include the following:
In addition to eligibility requirements, contribution limits apply when you fund your HSA.
For 2024,individuals can contribute up to $4,150 and $8,300 for families.
In 2025, those limits change to$4,300 for individuals and $8,600 for families.
What Are the Benefits of Starting an HSA?
There are several benefits for HSA funds.
No Minimum Amount Required
There is no minimum deposit needed to open an HSA account.
Account Ownership is Always Yours
Your HSA account is portable.
If someone else contributes, like an employer, the funds are also pre-tax.
The amount in your HSA rolls over to the following year.
Investment Opportunity
You are allowed to make investments through your HSA.
Those investment options include mutual funds, stocks and bonds.
Your earnings are not taxed.
What Are the Cons of Starting an HSA?
Although there are several advantages to starting an HSA, you must be aware of the disadvantages.
If medical emergencies arise, youll likely have to pay out-of-pocket costs before your HDHP insurance applies.
For those with medical expenses that happen at the beginning of the year, it could strain your finances.
Keeping Track of All Records
There are regulatory requirements that must be met for HSAs.
You must also keep receipts of your qualified medical expenses if the IRS flags your return for an audit.
This rule applies even if youre still employed.
The IRS also will expect you to pay a 20% penalty.
How Do You Decide if an HSA is Right for You?
To open an HSA, you must be enrolled in an HDHP.
For 2024, the minimum deductible for an individual is $1,600 or $3,200 for families.
An HDHP is ideal for those who dont expect frequent medical expenses.
Are You Able To Afford a Higher Deductible?
Evaluate your financial situation and determine if you’re free to afford the out-of-pocket expenses formedical coverage.
For HDHP coverage to begin, you must pay out-of-pocket medical expenses first.
Are Tax Savings Important to You?
Another added benefit is the money in your HSA grows tax-free.
What Are Your Healthcare Needs?
Is an HSA Part of Your Retirement Strategy?
After 65, you’re able to use your HSA for nonmedical expenses without penalties.
Keep in mind that withdrawals will still be taxed as ordinary income.
For qualified medical expenses, you dont have to pay taxes.
An HSA can serve as an additional savings vehicle alongside yourIRAor401(k) plan.
Can You Maximize Your Contributions?
How Do You Start an HSA?
Starting an HSA is relatively easy.
An HSA is convenient since youre issued a debit card for your account.
Your HSA account balance never expires, and it’s possible for you to reduce your taxes.
Takeaway
Finding and working with a financial advisor is a great idea.
A financial advisor will help keep track of your finances and assist you in attaining your financial goals.
Get to know your financial advisor options today for free!
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