If you work for an employer who offers an optional High-Deductible Health Plan, you could enjoy a list of potential benefits and advantages that just won’t quit. How so? Because you can have a Health Savings Account – an HSA!
- The contributions you make to your HSA are pre-tax, (aka tax-free)
If you make your contributions via payroll deduction, you don’t have to wait for a tax refund. The money starts to work for you right away. That can be up to a 20% savings when you compare it to post-tax dollars.
- The funds in your account roll over from one year to the next
Unlike an FSA, there’s no use-it-or-lose-it provision. Your money grows tax-free whenever your annual health care expenses are less than your contributions. (In 2017, the contribution limits are $3,400 for an individual and $6,750 for a family.)
- Any interest you earn within your HSA is also tax free
That’s right! The money in your account, and the interest it can earn based on the type of account you have, isn’t subject to taxes as long as you keep it there.
- Money invested inside your HSA also grows untaxed
This can be a big deal. If the balance in your account grows large enough, you can start to invest a portion of it rather than leave it in a savings account. And, your investments grow tax-free just like your interest is tax-free. Over time, you could wind up with a significant investment balance as protection against possible future healthcare needs.
- Once you reach age 65, withdrawal penalties disappear
If there ends up being something you always wanted to do, but simply never got around to it, this may be the ticket. Once you turn 65, you can use funds for things that aren’t qualified medical expenses – the 20% penalty goes away. (You’ll still have to pay taxes, though.)
- You can use money in your HSA to pay for long-term care
This could turn out to be an important benefit, especially if your family history suggests long-term care is likely to be an expense you’ll face.
- HSAs are arguably the best retirement vehicle out there
Your 401(k) may take a hit every now and then, thanks to the market’s ups and downs. But, if you have a good balance in your HSA, moving some of your balance to a self-directed HSA investment platform* could be your key to a more comfortable retirement.
If you don’t need the money to pay for qualified medical expenses at the time of the expense, just save your receipts. The rules allow you to reimburse yourself at any later time. It’s kind of like paying yourself first – twice!
Then, once you reach age 65, you can withdraw your funds without penalty. You just pay the income tax (at the tax bracket you’re in at the time – not the one you’re in now during your “earning” years). It works pretty much the same way the tax-deferred provision of a regular retirement account works.
Finally, HSAs aren’t subject to required minimum distribution rules – meaning you aren’t required to start taking withdrawals from this account at age 70 ½, as with other retirement products or pension programs.
Where to Get More Information
This article is a quick review of the benefits and advantages of an HSA. Financial Center First Credit Union offers a free Health Savings Account and an HSA investment platform to members with higher balances. Financial Center’s HSA comes with a free, convenient-to-use debit card. It makes it simple to track all your health-related expenses. To learn more and open your own HSA, contact Financial Center’s dedicated HSA Team by calling 317.916.7705 or by emailing them at MET@fcfcu.com.
*For specific tax advice, please consult a tax professional. Devenir, LLC, is a registered investment adviser chosen by Financial Center First Credit Union to research and select the Financial Center First Credit Union HSA Investment Account mutual fund investment options. Investments are not guaranteed or insured and may lose value, including the loss of principal. Please consult your tax advisor for information about how investments may affect you.