Managing one or more Health Savings Accounts can seem complicated. Laura answers a listener question about what do to when you end up with more than one HSA. Find out how these special accounts save money, the rules for using them, who can have one, and where to open one up.
7 Major Benefits of a Health Savings Account (HSA)
If you’re eligible for an HSA, it’s a terrific and easy way to cut your taxes and save money on a variety of healthcare expenses. It can give you peace of mind when you have unexpected medical bills to know that you have savings to pay them.
Here are 7 major benefits of an HSA:
- Contributions are tax deductible up to the annual legal limit. That means you reduce your taxable income and the amount of tax you have to pay by funding the account.
- You never lose funds because they stay in the account from year to year for your entire life, with no penalty if you don’t spend them.
- Withdrawals are never taxed as long as you spend them on qualified medical expenses.
- Contributions grow tax-free when you have interest earnings or investment gains, as long as you spend them on qualified medical expenses now or in retirement.
- You can spend the funds on you, your family, or your dependents when there are qualified, unreimbursed medical expenses.
- You own it and can decide how much to save or spend each year. An HSA is portable, so if you change employers, switch health plans, or become unemployed, it’s yours to keep.
- If you no longer have a high deductible health plan you can’t continue making contributions, however, you can continue to spend the funds on qualified expenses.
Even though these are great benefits, remember that a high deductible health plan isn’t the right choice for everyone. They work best when you're in relatively good health and aren't likely to spend the full deductible each year.
If you can afford paying the higher deductible, having an HSA can help you build up savings to pay medical bills or to accumulate an additional nest egg to spend after age 65, especially if you’re already maxing out a retirement account.
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