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Can Freelancers Open an HSA?

4 min read

30 sec brief

The freedom the freelance lifestyle brings is exhilarating. If you’re a night owl who can only put words on paper at 2 a.m., freelancing may be great. If you want to use your knowledge in a new way to help others, freelancing may be the way to do it.  With all the fanfare surrounding the…

The freedom the freelance lifestyle brings is exhilarating. If you’re a night owl who can only put words on paper at 2 a.m., freelancing may be great. If you want to use your knowledge in a new way to help others, freelancing may be the way to do it. 

With all the fanfare surrounding the lifestyle, you have to be realistic when you begin freelancing. The necessities of life must be figured out. In addition to the day to day, you’ll want to think about things such as retirement and health insurance. 

Freelancers have many options for healthcare, including:

  • Affordable Care Act coverage
  • COBRA
  • Healthcare Sharing Ministries
  • Coverage under Spouse/Partner
  • And more…

If you can afford it, you may consider obtaining coverage for yourself under a high deductible health plan and open an HSA to go along with it.

Let’s explore this option.

What is an HSA?

A Health Savings Account (HSA) is a tax-advantaged medical savings account, available to those enrolled in a high-deductible health plan (HDHP).

HSA funds can be used to pay for qualifying healthcare expenses without federal tax liability or penalty. The money you contribute to your HSA is not subject to federal income tax and the funds roll over year to year if not used.

When you look for plans, be sure it qualifies for an HSA. Many sites make this pretty clear but do your due diligence to avoid purchasing a plan that doesn’t qualify. 

In addition to a qualifying HDHP, you’ll have to meet the following criteria to open an HSA:

  • You don’t have other health insurance coverage such as Medicaid, Medicare or FSA coverage through your spouse’s plan
  • You cannot be claimed as a dependent on anyone else’s tax return

Like all savings accounts, HSAs have annual contribution limits. The 2019 limits are:

  • $3,500 for singles
  • $7,000 for families

Additional HSA Advantages 

You can use the money in your HSA at any time for any purpose. Here’s the catch, if the money is used for items other than qualified medical expenses, and you’re not 65 or older or disabled, the funds will be taxed, and you’ll have to pay a 20% penalty.

HSAs can also be used as a vehicle for retirement savings. They provide a clear way to save tax-free dollars alongside other 401k or IRA accounts you may already have.

When you hit age 65, you can use HSA funds for anything you want or need, not just medical expenses. In addition, HSAs are the only type of account that allows you to save pre-tax money and use pre-tax dollars to pay for healthcare costs. Estimates show that retirement health costs could be close to $285,000 per couple, and you know the numbers will do nothing but increase over time. Doesn’t it make sense to have money to help cover those costs completely tax-free?

How Do I Get an HSA?

This is the easy part! Once you have a qualifying HDHP, you can open an HSA at several financial institutions or through online options such as Lively.

As a freelancer, you already know the importance of careful daily planning. You also know you have to plan for the future. By opening and funding an HSA, you can save for healthcare costs and retirement at the same time. If there’s anything better than crossing two items off the list at once, I don’t know what it is!

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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.

About the author

Vicky Warren

Vicky Warren, once a nurse, now a freelance healthcare writer and social media coach.

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