Demystifying a Lesser-known Account That Just Might Be Right for You
In recent months, several friends have switched jobs or changed healthcare plans, and as we’ve caught up on each other’s post-pandemic lives, health insurance and benefits have been hot topics of discussion. High Deductible Health Plans and the Health Savings Accounts that come with them have caused some confusion, so I thought I’d use this space to answer some recurring questions. And yes, this IS the kind of spicy stuff financial planners talk about in their free time…
“Won’t my deductible be high?” Well, yes, but the definition of “high” might not be too high depending on your circumstances, and the benefits may outweigh the costs in the long run. Depending on your plan, your deductible might be as low as $1,400 for an individual, and you’ll be allowed to defer taxes on $3,600 of income for the 2021 tax year. If you are someone without high recurring medical bills and have time on your side, you could reap the benefits of an HSA’s “triple tax advantage”.
“What is the ‘triple tax advantage’?” This is where it gets good! HSAs are tax-advantaged in the contribution year and in later years. The triple tax advantage is as follows; 1: contributions reduce your taxable income this year; 2: any gains are tax-free as long as you leave the funds in the account and 3: when these funds are used for medical expenses later, the withdrawals are tax-free! No other account type gives you that much bang for your buck!
“Don’t I have to use that money by the end of the year?” No, unlike the Flexible Savings Account or FSA, your HSA is not “use it or lose it” and can be carried over year after year. That way, you can use the “triple tax advantage” for as long as you participate in a High Deductible Health Plan, and the power of compounding will quickly become your friend!
“Will I lose my HSA money if I leave my employer?” Good question! The answer, fortunately, is no! HSAs are portable, which means you take it with you when you leave. Your ability to contribute to an HSA in future years may go away if you join an insurance plan without a high deductible, but the account remains yours to use, or let grow as you see fit!
If you have questions about your eligibility to participate in an HSA, or your employer’s benefits in general, please reach out. Armor is here to help, and we love talking about this stuff!