Health Savings Accounts (HSAs)

Let’s talk about health savings accounts or a lot of people refer to them as HSAs. So first, what is this? This is a tool that you’re allowed to make tax deductible contributions into. You get tax-deferred growth. You can invest it if you want to, leave it in cash or savings. And then as long as you’re taking that money out for some medical expense, it’s tax-free coming out. They call that triple tax. It’s basically the only account out there that’s allowed to do that. Tax-deferred going in, tax-deferred growth and then tax-free distributions. So very, very powerful tool out there. Let me give you an example of how you may use one of these. Let’s say I have an HSA. Well I have children. So we have to go to the doctor occasionally, right? Things come up with kids. So let’s say I have a copay of $20 for my primary care physician. So my insurance maybe picks up the bulk of the bill and I have this $20 thing. If I have money in my HSA account I could write a check out of that. And that’s a medical expense, right, it’s paying a physician? So that there comes out tax-free. So I’m putting pre-tax dollars in and I’m paying with pre-tax, but it’s not hurting me from a tax thing. So on your tax return, think of it as a way of reducing your income, reducing your taxable income, but still using that power to pay off medical stuff down the road. So their limits change every year, depending upon if you’re an individual or a family. So I won’t get into all that because they change all the time. But look those up. But really important though is you have to be eligible for one of these depending upon the health insurance plan you’re on will determine if you can have an HSA or you cannot. I basically should have said contribute to an HSA. Because a lot of times your insurance changes whether your employer changes it or you change it, some years you may be eligible and some years you may be not. If you’re not eligible, all that means is you can’t contribute that year. You can still own one and you still can use it. You just can’t make new contributions until maybe you get under a new eligible plan. The other thing that’s kind of unique about these and a good thing is there’s no forced distributions. So think of like your 401Ks and IRAs. You put these monies in at the age 72, you have to pull this money out, required minimum distributions. HSAs you could technically defer forever. There’s no forced distributions. A lot of times people use them up over time because medical expenses arise and they’re paying that. But if you were fortunate enough to put a fair amount of money in and had great health and didn’t need it, guess what? It could grow indefinitely for the most part along that. So if you don’t have one, maybe look into how you can get one or seeing if you’re eligible and see how it could play a role in your retirement because there’s some other neat things we can do with these later on in life.