What is an HSA and should you have one?
HSA stands for Health Savings Account. If you have a job with benefits (good on you), look for it as an option as part of your health insurance plan. Your employer may even contribute money to it on your behalf. Even if you’re covering your own health insurance (also very responsible), you can sign up for one on your own.
So… get one?
Almost certainly yes! If you’re young, healthy, and eligible based on the insurance you choose, an HSA is a not-so-secret, really terrific way to save money. With an HSA, you can save on taxes and also keep your options open for how you use the money down the road.
Check your eligibility
Here’s how it works. HSAs are available for people who have high-deductible health plans. That means you pay less every month for the cost of the insurance itself, compared to other plans. But if you have medical expenses, you pay a higher amount (deductible) before the insurance kicks in and takes over paying the bills.
Let’s not get all riled up about deductibles here. The point is, these kinds of plans are good for young healthy people, because the odds that you’re going to have a lot of medical expenses are low, but the odds that you want to save money are 💯. If you have a high-deductible plan, you can get an HSA.
Health Savings Account (HSA) vs. Flexible Spending Account (FSA)
Yes, these are different things. HSAs and FSAs both allow to you set aside money for your health before taxes. That means when you go to pay taxes, this money is already subtracted from your total income. Smaller income, less taxes. That’s how it works, this beauty of “pre-tax money.”
So what’s the difference between an FSA and an HSA? Well, the money you put into an FSA disappears at the end of the calendar year. Use it or lose it. The money you put in an HSA can stay there forever, until you need it.
Use it if you need it, save it if you don’t
HSAs are flexible in how the money can be used. In the short term, you can spend it on qualified medical expenses. That includes: copays, prescriptions, medical treatments, vision check-ups, dentist visits, and more. It’s a long list and includes the all most common, major stuff. It’s still possible to use the funds for something else, but not recommended. Then you have to go back and pay taxes, plus a 20% penalty. (That’s a really high percentage in money terms. Yuck.)
Hopefully you don’t have too many medical things to pay for, however. So you can keep that money in your HSA until you get older. Because sorry, the odds of that eventually happening are also 💯.
But wait, there’s more… money, that is
Here’s where it gets interesting. You can also invest the money in your HSA. Yup. That means use it to earn more money. A lot of people skip doing this, because they forget or they never get around to it or they figure it’s not worth it. This is absolutely tragic!
Investing the money in your HSA is a really smart way to build wealth—yes, wealth. Pretty quickly, you can start to see your account balance grow. The positive emotions just come pouring out when that happens, they just do. (Ok fine, maybe not. But progress will for sure make you feel better.)
You can seriously do this
The contribution limit for HSAs is $3,600 in 2021. Does that sound like a lot of money? Maybe. But that’s an achievable savings goal for an entire year. Think of it as $300 a month and then ask yourself how quickly you can get there. Maybe you start with $50 a month, then $100. That’s progress. Your HSA is totally worth it!
This post has been draining. But the point is HSAs really have zero downside. How often does that happen? (Hint: NOT 💯) So open one already. Ok? Ok. Ok? Ok ok.
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A few years ago, on a crisp fall night, I woke up with a fever, and knew something was not right. I went to the hospital and had an emergency appendectomy the next morning.
I was lucky enough to have good health insurance at the time, and the ER visit and surgery were fully paid for. But the diagnosis had taken a few weeks before that trip to the hospital, and the recovery wasn’t easy either. My health plan didn’t have an HSA option at the time, but it definitely would have helped to pay for those extra doctors’ appointments.