What is a health savings account?
Health insurance costs continue to increase. Making sure that you have enough financial resources to cover your health care costs is an important pillar of financial security. Having a Health Savings Account might be a good idea for you.
What is a Health Savings Account?
Simply put, a Health Savings Account (HSA) allows you to put pre-tax money into a dedicated HSA to pay for qualified medical expenses. Using earnings that have not had taxes taken out to pay for deductibles, copayments, and other qualified expenses, lowers your health care costs. HSAs must be spent on qualified medical expenses if you are under 65. Once you reach 65, you can withdraw HSA funds for any reason.
If you are in a health plan with a deductible of at least $1,400 for an individual and $2,800 for a family, you can use an HSA. You may want to check to see if your health plan is “HSA eligible.” For 2020, the out-of-pocket maximum for an HSA-qualified health plan cannot be more than $6,900 for self-only coverage or $13,800 for family coverage.
How much can I contribute to an HSA?
In 2020, you can contribute up to $3,550 for an individual and up to $7,100 for a family. In addition to these limits, HSA participants who are 55 or older can contribute an additional $1,000 as a catch-up contribution. The limits include contributions to your HSA from your employer. HSA funds roll over year to year if you don’t spend them, and HSAs earn interest.
Invest your HSA Funds
Individuals are allowed to invest the money in their HSA accounts in mutual funds, etfs, and stocks. The gains aren’t taxable if they are used to pay for qualified medical expenses, which is another amazing benefit.
An HSA is not the same as an FSA
An FSA (Flexible Spending Account) and an HSA are similar, but they have some notable differences. Primarily, self-employed individuals aren’t eligible for funding an FSA. HSA funds can be rolled over year after year, but FSA funds must be used in that tax year or they expire.