A health savings account, HSA, is a type of tax deferred savings account that lets you set aside pre-tax money to pay for qualified medical expenses. And any money you take out to pay for qualified medical expenses is income-tax-free.
To qualify for HSA, you must be enrolled in a High Deductible Health Plan (HDHP). HDHP is a health plan that only covers preventative services before the deductible. Deductibles are higher than other health insurance plans, but monthly premiums are low.
Your deductible is the maximum amount that you must pay toward your health care expenses before benefits are paid by your plan.
HDHP are good for those individuals who do not have significant healthcare expenses. My wife and I had the low deductible, high premium health insurance plan last year, we went for our yearly checkups, and that was it! This year we opted to get the HDHP, our preventative visits are free. We get to save and have the option to invest with an HSA.
Annual IRS Limits
For 2021, you can contribute up to $3,600 for self-coverage and up to $7,200 for family coverage. These funds roll over year to year if you do not spend them. HSA plans are also great if your employers contribute to them.
Option to invest for greater potential long-term growth
What I love about HSA is the investing option that comes with it. You can invest in mutual/index funds and watch your money grow over the years, tax-free.
Additionally, if you have funds to pay for your health care needs right now, you can do that then save the receipts and reimburse yourself later using your HSA. Don’t forget to keep ALL your receipts!
Different companies have different investment guidelines, so be sure to check with your company.
We use Optum Bank, and they have the following investment guidelines:
- The minimum transferrable amount to invest is $100
- Investment threshold is $2,000, meaning we cannot go below $2,000 in our HSA account. So, if we have $2,500, we can only invest $500. We must have at least $2,000 in the HSA
- When using an HSA to pay for your healthcare expenses, you must first move funds back into your HSA from your investment account.
The reason we are choosing to invest our HSA and pay our healthcare expenses out of pocket is because healthcare WILL be much more expensive when we are older. When you get older, your health care needs are going to go up, it comes with aging. So why not invest now for your future healthcare needs.
Another perk of investing your HSA is once you reach 65 years and older, you can use the HSA funds for non-qualified medical expenses.
Do you have an HSA?