Why get a Health Savings Account(HSA) plan?

As open enrollment has just ended, there’s no doubt that Americans have one thing on their mind (aside from the holidays) and that is their health insurance and how much it’s going to cost. Though it has grown in popularity in recent years, many people still don’t really know much about the Health Savings Account (HSA) option when it comes to their healthcare.

HSAs are available through both private insurance and employer sponsored plans and encourage individuals to save for future medical related expenses. It combines a high-deductible health insurance plan with a tax-favored savings account – think of it as similar to an IRA. The money left in your savings account earns interest and is yours to keep and spend on medical expenses in the future.

One of the biggest advantages to having an HSA is the freedom of the money in your account. While yes, you must use this money on medical expenses, you control how much you put into it and how it is spent. Having an HSA allows you to shop around for care based not only on cost but also quality. Plus there’s the added bonus that any unused funds at the end of the year roll over for the following year and you’re able to use them for the following 365 days.

Another great incentive to establishing an HSA is that your employer can contribute to the fund. Even if you change jobs or are let go, the funds remain in your account so it’s a nice little cushion in case of the unpredictable. In addition, the contributions to this account made by your employers may be excluded from your gross income and therefore aren’t taxable. If for some reason your insurance coverage ends, you still have the money in your HSA to fall back on as well, which can really come in handy if you change jobs or retire.

“There are only two things certain in life: death and taxes” is a famous quote attributed to Benjamin Franklin. But what he didn’t have was an HSA (or health insurance for that matter), which features a number of tax advantages. Contributions in your HSA are 100% tax-deductible (within the legal limit) which is great news. Withdrawals paid to qualified medical expenses, including dental and vision are never taxed, in effect making them tax-free. Furthermore, any interest earnings accrued in your HSA are tax-deferred and just go right back into your health. While taxes are still certain, an HSA certainly offers some breaks to help you out.

Of course as in all things, there are disadvantages to having a Health Savings Account as well, but in many cases the pros outweigh the cons. It’s up to you to do additional research into your health insurance options, and whether or not an HSA may be beneficial to you and your family. It’s pertinent to keep in mind that each year you should review your health insurance participation and prior medical expenditures as a basis for whether or not an HSA is beneficial and how much you should contribute.