What is a Health Savings Account and Should I Open One?
If you have a High Deductible Health Plan for your health insurance, then you are eligible for a Health Savings Account (HSA). You can use HSA funds to pay for qualified medical expenses. These expenses can be incurred by you, your spouse, or any dependents listed on your tax return.
There is no need to submit receipts, but you do want to keep these as proof that you used the money for qualified medical expenses. This will come in handy should you ever have an IRS audit.
Advantages to Opening a Health Savings Account
- Lower your taxable income. The money you put into the account is pre-tax. This reduces your taxable income you file your tax return.
- HSA accounts earn interest tax free. This means you won’t have to claim the earnings as income on your tax return.
- HSA contributions don’t expire. If you don’t use all the money in your account, then it can roll over to the next year. There is no need to “use it or lose it.”
- You can invest your account into a variety of investments. There is no minimum requirement. Just remember that some investments are not FDIC insured, so there is a potential to lose money.
- You can use your HSA as a retirement account. After you turn 65, any money in the account can be used for any purpose. It is no longer restricted to qualified medical expenses. This makes the account a potential retirement account.
If these advantages are appealing to you and you have a High Deductible Health Plan, then you may want to open an HSA. Saving for medical expenses, and having a great vehicle in which to do it, is an awesome idea!