5 Reasons You Need a Health Savings Account
Imagine for a second that you had a little financial fairy godmother sitting on your shoulder, promising to save you money on your healthcare expenses and help lower your taxes all while helping you invest for retirement.
It would seem too good to be true, right?
Well, here is the best part: that “fairy godmother” does exist, albeit in the form of an incredibly helpful financial account called a Health Savings Account. These accounts have so many benefits that can not only help you today but will also be instrumental in helping prepare you for those retirement years in the not-so-distant future.
Below, we will outline five key reasons you will want to open one of these accounts and get started taking advantage of all of its benefits as soon as possible:
Reason #1: HSAs can offer three amazing tax advantages
You likely already know about the ways that having a 401(k) or IRA can help you prepare for retirement (and save you money on your tax bill), but did you know that the Health Savings Account can provide similar tax advantages…plus some? It is true!
When you fund a Health Savings Account (which anyone who has a High Deductible Health Plan can do), you will then be able to enjoy triple tax advantages for life!
What does this really mean?
- your contributions to the account are tax-free (if the account is opened by your employer) or tax-deductible (if you opened the account on your own)
- You will not pay any taxes on the growth of the funds in the account (which is why it is such a great investment tool)
- You will not have to pay taxes on any of the money you withdraw from the account if you use that money for certain eligible health/medical expenses.
No other accounts offer advantages quite like the Health Savings Account, making it one of the best things you can open for yourself.
Reason #2: You can invest the money in your Health Savings Account
Unlike with your bank account, the money you contribute to your HSA can be invested, which gives it the potential to grow significantly over the years. The best part? If your account grows from your investments, you will not have to pay ANY taxes on that money as long as you use the funds for eligible expenses.
As an example, let’s say you contribute the annual maximum to your Health Savings Account (which for 2021 is $3,600 for an individual with a high deductible health plan or $7,200 for a family with that same type of health plan) and then invest those funds. If, after a year, that account grew by 5%, you wouldn’t have to pay taxes on that growth at all! Instead, you can leave those funds in your account with the potential to continue to grow OR you can use some of those funds to pay for certain medical or health expenses as you need to. Win-win!
Reason #3: You can use the money in your HSA to fund certain reproductive expenses
As you likely know by now, being a woman is expensive! It is estimated that most women will spend about $15,000 over the course of their lifetimes on essential things like birth control and menstrual products. That number can even skyrocket to an alarming $155,000 over the course of a lifetime if you include things like pregnancy, childbirth, fertility treatments, and other reproductive costs.
The good news? Your Health Savings Account can help you pay for so many of these common reproductive expenses. That’s right! The money in your HSA can be used (tax-free) to pay for things like birth control, tampons, pregnancy tests, ovulation kits, prenatal vitamins, fertility trackers, and more.
Like most things in my life, I’m a bit of a planner. We are not expecting yet, but we spent Labor Day weekend setting up our nursery thanks to hand me down baby items from family. Fingers crossed we have a girl because there is a lot of pink! Having my HSA gives me piece of mind about upcoming expenses for growing our family.
Reason #4: HSA funds can be used for other health expenses, too!
There are nearly 300 health and medical expenses that your Health Savings funds can go towards including acne treatment, dental care, eye glasses, medical labs and blood work, psychologist fees, speech therapy, and more.
Reason #5: Your HSA can double as another retirement account
As if you needed any more reasons to love a Health Savings Account, here’s one more amazing reason: the funds in your account can be used for ANYTHING (not just health and medical care) once you turn 65. Once you hit that magical age, your HSA functions just like a normal retirement account. You’ll be able to use the money that has been invested in your account to fund your normal retirement lifestyle and – bonus! – you can still enjoy tax-free benefits if you do end up using these funds for eligible health and medical expenses. Sure, you will have to pay income tax on the funds if they’re used for anything other than medical expenses, but you’d have to do this anyway with your 401(k) or Traditional IRA dollars.
I finally opened up an HSA at my annual physical last week while waiting for my doctor. It’s something that has been on my to-do list for far too long, but took minutes to do. There are lots of great options to choose from no fees to flexibility with invests depending on the custodian. We all incur medical expenses throughout our life, both unplanned and expected ones. Why not have a smart savings vehicle to help out? If you have a High Deductible Health Plan, you owe it to yourself to open your Health Savings Account today!