8 Reasons to Open a Health Savings Account

A health savings account can be a helpful tool for shouldering the burden of healthcare costs, along with providing additional financial benefits.
 

Healthcare costs are rising every year, and no matter what your financial situation currently is, an unexpected medical bill can quickly become a drain on your resources.
 
A health savings account, or HSA, can be a helpful tool for shouldering the burden of healthcare costs, along with providing additional financial benefits.

What is a Health Savings Account (HSA)?

Health Savings Accounts, otherwise known HSAs, are available to individuals with a high-deductible health insurance plan who may need additional help funding their medical costs. 

It’s a special type of savings account that allows contributions to be made for tax-free withdrawals to pay for eligible healthcare expenses.

How Does a Health Savings Account Work?

Many companies offer their employees an HSA through their workplace. If eligible, employees can contribute pre-tax dollars from their paycheck into an HSA, and employers may also contribute as part of their employee benefits package.

There are contribution limits each year, which the IRS determines. However, catch-up contributions can be made by individuals aged 55 or older, allowing the account owner to make additional contributions.

To open an HSA, you must have a qualified type of health insurance plan, usually one with a high deductible. If your workplace doesn’t offer an HSA, you can open an HSA on your own through a financial institution like First National Bank and Trust. You can make tax-deductible contributions and earn tax-free interest throughout the year.  As long as the money is used for qualified medical expenses, the withdrawals are also tax free.

Why Open an HSA

Along with helping you balance the cost of a high-deductible health plan, there are plenty of other reasons to consider opening an HSA.

1. You Can Save on Taxes

Since your HSA contributions are tax deductible, contributing up to the maximum allowance throughout the year can help lower your taxable income meaning more money stays in your pocket come tax time!

2. You Can Earn Interest

Although interest earned on an HSA account may be small, if you keep your balance high and don’t need to use the funds on medical expenses throughout the year, you may be able to earn a little more. Additionally, the interest you earn is tax-free, meaning you get to keep all of what you earn. 

3. Contributions Stay With You

Unlike a Flexible Savings Account (FSA), any money you contribute to your HSA stays with you for as long as needed. There’s no “use it or lose it” with an HSA—any money you don’t spend that year on medical costs remains in the account to be used in future years, available and ready for use.

4. You Can Use It For More Than “Medical Expenses”

Although HSAs are typically associated with copays and premiums, prescriptions, dental, and eye care, there’s so much more you can use them for. 

The Cares Act has expanded eligibility for HSA funds for over-the-counter medications like pain relief, allergy medicine, cold and flu medications, cough drops, and feminine hygiene products. You can now also use your HSA funds on sun protection, like sunscreen and moisturizers that contain SPF. Covid tests may also be purchased using HSA savings.

Travel expenses for medical care, like trains or parking fees, may not work with your HSA debit card but can usually be submitted for reimbursement.

5. It Can Be An Investment Tool

If you’re not actively using your HSA money, you could consider investing it. Depending on the plan you have in place, your provider may be able to invest the money you’re holding in your HSA tax-free. However, it’s important to note that investing means this money is no longer FDIC insured.

While investing HSA funds may not be right for everyone, it can provide an opportunity to have more money in your retirement pot. Of course, it’s always best to speak with a financial advisor to see if this might be a good option for you.

6. You Can Use It For Medicare Premiums

If you have no medical expenses, an HSA can still be helpful. At some point, especially when you’re retired, you will likely have some medical expenses that you’ll need to cover, including Medicare premiums. The funds in an HSA can be used to pay for these premiums and any medical expenses you might have at that point. 

7. You Can Use It For Non Medical Expenses After 65

After the age of 65, you can make withdrawals from your HSA to pay for non-medical expenses without any penalties. However, you will have to pay taxes on these withdrawals if they’re being used for non-medical purposes.  As with all tax-related matters, it is important to work with a qualified professional as they can best explain how these rules specifically apply to your situation.

Paying taxes on your HSA withdrawals isn’t ideal, mainly because your HSA won’t have earned the same level of interest as other investment accounts. But if you’re in a pinch and on a fixed income in your later years, these HSA funds can be helpful.

8. You’re Prepared For A Rainy Day

One of the most significant benefits of having an HSA is the peace of mind you get from knowing you are ready for unexpected medical expenses. HSAs can help you set aside money so you can avoid debt that comes from unexpected medical bills. 

If you lose your job and are receiving unemployment funds, you may be able to use your HSA money to help fund COBRA insurance until you find an alternative health insurance solution.

How to Open a Health Savings Account

Start enjoying the benefits of a health savings account today with First National Bank and Trust. 
Contact us today to open your HSA or ask any questions about whether a health savings account is the right option for you. Visit us at one of our locations in Southern Wisconsin and Northern Illinois to see why you should give us a try.