You may not have heard of a health savings account or an HSA for short, or maybe you have but you’re trying to do some research (good idea!). The truth is that these accounts are one of the most advantageous accounts a person could have.
With the way the healthcare system is today it has put all the responsibility of paying for our health in our hands. That’s not to say that it’s a bad thing, but if you don’t know how to take advantage of all the tax vehicles available to you then you might be at a disadvantage.
Today I’m going to talk about the top 3 reason why I love having an HSA and why you should have one too.
1- HSA’s might be better than 401ks when it comes to tax savings
One of the things I didn’t realize about HSA’s is how much I can benefit from them in tax savings. We will all have to pay for some sort of medical expenses eventually when we get older so why not take advantage of this fact and use an HSA?
You might be thinking, well what about if healthcare laws change and everyone get free healthcare? If that’s the case then you’ll still get the same tax breaks as a traditional IRA hidden as an HSA. It’s almost like getting another “free” IRA that you can contribute to each year.
Let me explain. With an HSA you get a tax break 3 times. First, your contributions are tax deductible each year. Next, your money can grow tax deferred in that HSA account. And last, your withdrawal for medical expenses are also tax free.
So if once you’re retired an eligible for withdrawals you can do so from an HSA, but you’ll have to pay taxes on the withdrawls. This is no different from a traditional IRA. It’s like you’re getting a 2 for 1 type deal with the HSA because it could be used both ways.
The smart way to use it though is for medical expenses because you won’t have to pay taxes on those withdrawals. You can take them out tax free to pay for them giving you tax savings 3 separate times in the process.
2- You don’t have to worry about using up your money is an HSA account
Some people mistake an HSA with a FSA which is a flexible spending account that is used for medical expenses. With a FSA you have to use your money each year or else you lose it. That’s not the case with an HSA. You can save it until you’re ready to use it.
The best part about it is that you can save that money and have it grow tax deferred all through retirement. You can use it along the way or you can use it when you get older. Whatever makes the most sense for you is allowed. Which brings me to my next point.
3- HSA expenses have an unlimited timeframe for reimbursement
Since you can grow your money in your HSA tax free like an IRA you might want to keep that money in there so that it keeps growing. That would be perfectly ok to do for as long as you wanted to because you don’t have a time limit on when you have to reimburse yourself.
You do need to keep receipts and records of everything though in order to do that. As long as you do that you’re free to take out that money tax free anytime that you want to. For some people that will be each year as needed, and for others that might mean later during your retirement years. Both ways have their advantages.