HEALTH SAVINGS ACCOUNTS
In the fall of every year, most companies begin Open Enrollment. This is a time when you can make changes to your benefits. At the top of most people’s list is their health insurance.
Health insurance is expensive and seemingly complicated. Many people don’t want to deal with the headache of trying to figure out what plan is best for them and their family.
This often leads to a discussion over whether to choose the plan with the most coverage versus the cheapest plan with enough coverage.
While I’m not going to dive deep into all the nuances of plan selection, I do want to bring something to your attention that many people don’t know much about. Health Savings Accounts or HSAs.
A health savings account is, in my opinion, the best place you can put your money. I will get into that shortly. Let me define them first.
An HSA is an account that is set up with a trustee that allows you to save money that can later be used for medical expenses.
Why I Love HSAs
In my opinion, an HSA is the best place you can save money. The tax benefits don’t get any better.
- All of the money you personally save is tax deductible. This, like a traditional IRA or 401(k) reduces your taxable income by the amount you save.
- You can invest the money you save and pay no taxes on interest, dividends, or capital gains distributions. This is the same as both a traditional and Roth IRA or 401(k).
- Lastly, you pay no taxes when you pull the money out if the money is used for medical expenses (see below for further explanation). This is like a Roth IRA or 401(k).
As mentioned in the 3rd bullet point, the money you take out is tax free for medical expenses. The added benefit to this is that the medical expense doesn’t have to be current. They just have to have occurred after you established the HSA.
After that, as long as you save the receipts for your medical expenses, you can pull out tax free money from your account at any point in the future.
Once you’ve turned 65, you can pull the money out for non medical expenses and it’s taxed like your traditional 401(k) is as well.
What’s The Downside?
The biggest downside to these plans is that everyone is not eligible. You must have a high-deductible healthcare plan (HDHP) that is HSA eligible.
Some families who have high annual medical expenses may be better off paying a higher monthly premium to lower their total out of pocket costs.
The only other downside in my opinion is that there is a limit on how much you can contribute annually. That limit is significantly less than a 401(k) and even an IRA.
For individuals in 2021, the limit is $3,600. For families, it’s $7,200.
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A lot has happened this past quarter. One of those being the weather warming up nicely.
With the warmer weather, I’ve been able to get out to the golf course a few times.
During one of those rounds, everything lined up perfectly and I made my first ever hole in one!
With the warmer weather, I’ve been able to get out to the golf course a few times.
While playing with some friends on Friday, May 21st, I hit the shot of my life.
As someone who loves playing golf, this was an amazing experience!
Have you ever made a hole in one? Don’t play golf, what would be your equivalent of a hole in one?
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