Millennials get a bad rap. It seems everyone has an opinion about the largest generation, and much of it stumbles into stereotypes.
However, at least one publication had something good to say about Gen Yers.
One savings option appears to be the perfect fit for the professional and personal lifestyles of many millennials. It’s the Health Savings Account (HSA).
What is a Health Savings Account?
An HSA is a two-part plan that offers relief from the squeeze of rising healthcare costs. It combines coverage for healthcare expenses and a tax-favored savings plan. Here’s how it works.
- The medical plan pays for covered health expenses. To qualify as part of the HSA plan, the medical plan must be a high-deductible health plan (HDHP). But those looking for medical plans shouldn’t let the high deductible scare them. HSAs may offer a workable solution. More about that later.
- The savings plan helps account holders pay for covered healthcare expenses. The best part is its tax-saving trilogy. Money going into the savings account, plus any earned interest and investment gains, and the withdrawals used for qualified health expenses are all tax-free.
How are HSAs a Good Fit for Millennials?
HSAs have a few features that millennials may find attractive.
Millennials are a mobile crowd. More than half are looking for a new job. Because individuals own the HSA account, they can take it with them – even if they decide to change jobs. And remaining funds roll over year after year. No “use it or lose it” restrictions on HSAs. The “use it or lose it” feature is commonly seen in the FSA (Flexible Spending Account). HSA ≠ FSA!
Millennials love having information and options (I mean who doesn’t, right?). They are more likely to do online comparisons and look for the best deals. Because those with HSAs own the account, what they do with savings is their choice. Here are a few examples.
- Account holders can use all or part of their savings to pay for eligible healthcare expenses
- They can pay for healthcare expenses out-of-pocket to grow savings and earn interest and then pay themselves back with those HSA funds down the road if they want
- Individuals can invest their funds and watch returns grow tax-free
The flexibility of HSAs allows for the use of funds for either short-term or long-term needs. HSAs help millennials focus on savings, not just healthcare spending.
They Act on Financial Future
Student debt, high unemployment, and other financial worries are huge factors in millennials’ lives. Education is in a millennial’s DNA. They are hands-on in looking for ways to save money to help relieve some of those worries. The HSA design can help millennials act on their financial future.
For example, remember that high-deductible that goes with the medical plan? While it may sound scary, it potentially saves more by reducing costs. How?
- High-deductible health plans have significantly lower premiums than other health plan options
- Healthy millennials with lower healthcare expenses save money from reduced premiums
- They can maximize savings from reduced premiums, while also easing tax burdens
- With careful planning, they cover future healthcare expenses and have savings left over
They own it. They control it. They act on it. Sounds like a plan millennials will love.
Disclaimer: As always, the information provided is for your general background only, and is not intended to constitute legal or tax advice as to your specific circumstances. We recommend you review legislation with legal counsel and visit your tax advisor for tax assistance and advice. We also recommend that you optimize your healthcare spending, maximize your savings, and better your livelihood!
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.