What is an HSA?
An HSA or Health Savings Account is a personal savings account for health expenses. In more technical terms, an HSA is an interest-bearing health account that can be used for health-related expenses with contributions limits set annually by the IRS.
HSAs are owned by individuals (not employers) and can be transferred from job to job or institution to institution, similar to a 401k or IRA. Contributions are 100% tax deductible (until you reach the federal limit) and HSAs have triple tax advantages (tax-deductible contributions, tax-free interest and tax-free withdrawals for medical expenses).
An HSA is not a healthcare plan, but can (and should) be used in conjunction with all high-deductible healthcare plans (HDHP) in the US.
How to Qualify
You must use a high-deductible health plan (HDHP). These plans have lower premiums and higher deductibles than traditional healthcare plans. Under 2017 federal regulations, HDHPs that qualify must have deductibles of $1,300 or more for an individual and $2,600 for a family. If your employer does not offer an HSA as part of your high deductible health plan, you can sign up as an individual (or family) and contribute.
How it Works
HSA limits are set by the IRS (each year) and you can contribute up to $3,400 for individuals and $6,750 for families, in 2017. Your employer can contribute to your account as well. You can use an HSA to pay for any medical related expenses (full list here) and unlike an FSA, there is no “use it or lose it” policy. You can keep any additional funds in your account to pay for medical expenses next year or in years to come. With Lively, it’s very simple to use your branded credit card to pay for health related expenses and upload receipts electronically.
In addition, all HSA contributions are eligible for personal use (non-health-related expenses) after you turn 65 years old. It’s a great way to save for health expenses and your retirement at the same time!
Is it Right for Me?
In a very stringent and limited healthcare world, HSAs offer flexible and creative health savings options. The ability to save money for both short term and long term health expenses offers financial foresight in an unknown healthcare market. Tax-free deductions only increase the value of your HSA, feel free to check out our savings calculator to get a feel for the real dollars. If you can afford to save for your health future, an HSA is an obvious solution for you.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.