Many of us are choosing to enroll in high-deductible health plans these days, which also creates the opportunity to start a health savings account (HSA).
This account is known for its “triple tax benefits” and can be a vehicle to help with medical expenses and retirement planning.
So when should you spend this money and when should you leave it alone? Here’s how to make the most of your hard-earned savings:
What’s the purpose of an HSA?
HSAs were created to help people with high-deductible health plans. By using tax-free money to pay for health care, the deductible becomes easier to pay.
Do I have to spend the money by a certain date?
Contributions can stay in your account indefinitely — you can even invest them. Or, use the money for health expenses anytime. On that note, you can open an HSA through your employer or on your own, and the account remains yours no matter where you work.
How should I spend my HSA funds?
Use HSA funds to cover expenses such as prescriptions, doctor visits, fertility treatments, therapy, glasses, dental cleanings, and more. If you decide to use these funds for nonmedical expenses, you’ll incur a 20% penalty if you’re under the age of 65.
Tip: Always document your HSA spending by keeping itemized receipts and explanation of benefits statements.
Since you can roll over unused HSA funds every year and also invest them, some people use HSAs to save for retirement. These accounts have an even better tax advantage than 401(k)s and IRAs when used for health expenses.
What about during retirement?
Once you’re 65, you can use HSA funds for any purpose. (Just know that nonmedical withdrawals will be taxed as income.)
Need help finding the best health insurance plan or understanding how to use an HSA? Reach out anytime.