stevepb / Pixabay: Savings accounts for a better health experience

Many don’t know that a Health Savings Account or HSA lets you save tax-free money. The funds can be used to pay out-of-pocket health expenses, and it helps that there is no deadline imposed to use it up.

How to Get an HSA?

Amnaj Khetsamtip/Shutterstock: Procedure of getting an HSA

The single-most essential eligibility criteria for HSAs is that you need to possess a high-deductible health insurance plan. Qualifying for Medicare nullifies your HSA eligibility. You also cannot be listed as a dependent on a third party’s tax return.

The high-deductible threshold set by the IRS is a minimum of $1,400 per individual. Still, it’s important to keep in mind that only some health plans are HSA-eligible.

How Do They Work?

You can only pay health expenses with your HSA, and it cannot be used for things like insurance premiums. The ceiling for out-of-pocket medical costs in 2020 is $6,900 per insured individual.

It’s possible to decide on a yearly contribution based on your income and regulations set by the IRS.

What Happens if the HSA Holder Dies?

You can assign a beneficiary of choice at the time of sign-up. If it’s your spouse, they will receive the money tax-free, but any other heir would have to pay the tax amount on the account value.

Advantages of Health Savings Account

Sven Mieke/Unsplash: Life after getting a health savings account

• HSAs are not subject to federal income taxes and aren’t listed in your gross annual income.
• The contributions are tax-deductible.
• Earned interest is also tax-free.
• You’re not the only one who can contribute to the account. Your employer, friends, and family members can do too!
• It’s portable, so even if you change the insurance company or employer, you’d still have access to the account.
• HSA spending covers everything from birth control pills to eyeglasses.
• Since there are no time limits to spend the funds, you can simply go on saving this money orinvesting it in smart ways.

Disadvantages of Health Savings Account

• If you use it for anything other than qualified medical expenses, expect to pay hefty penalties on both the money and the tax.
• You may be charged for account or transaction fees that are hidden. It’s best to ask your provider for a fee list when comparing your options.

How to Invest HSA Funds?

If you can afford it, contributing the maximum IRS allowed individual contribution of $3,550 per annum would reap great benefits later on. The good news is it can be an investment at the same time.

Through stocks, bonds, or relatively safer low-yielding funds, you can grow the HSA balance, which would be a blessing after retirement.

So find a good plan with minimum costs and profitable investment options. Your retired-self will definitely thank you later!