Health Savings Accounts

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Its likely safe to say that most of us have heard the term HSA at least once in the past year.

 

Whether it was when you met with your insurance agent or advisor to talk about your plan for the upcoming year, were perusing the latest money and finance trends from your source of choice, or a relative cornered you over the holidays and informed you they were the self-appointed expert on all things HSA because they had started one 6 months ago.

 

Whatever the circumstance, you have most likely heard of it, and perhaps it has started you on a quest to see if this HSA, that is the latest buzz, is right for you.

 

Now since our purpose in life here at LIA is to educate hard working Americans on financial matters and guide them in the process, we wanted to make sure we provided you a good overview of the attributes of an HSA and some trending uses as a supplement to retirement accounts.

 

An HSA stands for Health Savings Account and that is exactly what it is. Started in 2003, it is a special tax-advantaged personal savings account for those covered under a high deductible health plan, that allows you to save money for qualified health care expenses.

 

To qualify for a health savings account you must be on a high deductible health plan and generally have no other first dollar coverage.

 

Also, there are contribution limits like there are for an IRA or a 401k. For 2018 the contribution limits are $3,450 dollars for an individual and $6,900 for a family, unless your 55 and over, then you are allowed to contribute an extra 1,000 dollars a year as a catch up.

 

Now I want to take a second to go back and reference the fact that this is a personal savings account. In some cases employers will contribute to your HSA, depending on their sponsored health plan, and that has raised the question of “what happens to my plan if I leave my job?” and the answer is, nothing.

 

The account is yours and anyone can put money in it and you can take it with you wherever you go. Let’s continue on to the tax preferred treatment part.

 

An HSA has what most call the triple tax advantage. If you have your money withheld from your paycheck and contributed to your HSA then the money goes in tax free and while in the account any growth is tax deferred, and as long as the money is withdrawn for qualified medical expenses, then that is also tax free.

 

All in all, if you qualify for one it sounds pretty good, so let’s continue and cover a few more attributes of an HSA.

 

Another benefit to an HSA is that while you can only put in up to a certain dollar amount per year, that money does not have to be spent that year, or the next, unlike a flex account which must be used by the end of the calendar year otherwise you lose the money that was put in.

 

This is along with the fact that the money is contributed pre-tax and grows tax deferred, and the fact that many accounts will allow you to invest this money as you would an IRA is why many individuals are looking at HSAs as a supplement to their IRAs and 401k.

 

Let’s just rewind a second, did I just say that you can invest the money in your HSA account like you would an IRA?

 

Yes, many HSA providers allow you the option to either put your money into an FDIC insured savings account and earn a set amount of interest or you can choose to invest it, although there may be requirements such as a required minimum balance prior to investing.

 

Based on the options given from the account you have, you could choose from mutual funds all the way to small cap stocks!

 

For this reason it has become a great tool, especially for those who may not need to tap into it as much and it has time to grow, to use it as an extra retirement account.

 

Many people have started to do this with medical costs during retirement in mind, and rightfully so, as recent studies referenced on AARP have estimated the medical costs of an average couple retiring today, to exceed $270,000 (1). If you are qualified for an HSA and are interested in using it with retirement in mind I strongly recommend you schedule a meeting with a financial advisor or planner to review and see if it is a good option for you.  

 

They should be able to tell you about strategies such as the one time option of rolling over money from your IRA into your HSA and the rules associated with it, as well as when Medicare and COBRA become a factor and how these all can affect the use of an HSA.

 

To give a quick recap, HSA’s are special tax advantaged accounts for individuals on High Deductible health care plans that, if you choose and your account allows you the opportunity to invest, giving you the potential for market gains.

 

Remember it’s your personal account, but employers may contribute up to the limit. Also keep in mind you do not have to use it or lose it, you can keep your money in this account year after year and allow it to grow.

 

Now while the HSA is a useful and beneficial tool to have, it doesn’t mean that it is right for everyone. Once again it is highly recommended that, if you are interested, to speak with a financial advisor or planner to determine if an HSA is the right thing for your needs and future interests.

 

From the Team here at LIA – Happy Financial Planning

 

Sources:

(1) https://www.aarp.org/health/health-insurance/info-2017/retiree-health-care-costs-rise-fd.html

 

Laura Carlson offers Investment Advisory Services through Inspire Advisors, LLC (Hollister, CA 877-859-6383), an SEC Registered Investment Advisor. Inspire Advisors, LLC, and its advisors do not render tax, legal, or accounting advice.  Life Impact Advisors is not a registered investment advisor and is an affiliate of Inspire Advisors, LLC.  Insurance products and services are offered through Laura Carlson independent agent.

Life Impact Advisors, Laura Carlson and Inspire Advisors, LLC are not affiliated with or endorsed by the Social Security Administration or any government agency.