Start the year right with a Health Savings Account. Better known as an HSA, it can help you cope with higher healthcare costs. This year, you can contribute more: $4,150 for singles, 7.8% more than last year; $8,300 for families, up 7.1%; and an extra $1,000 if you are 55 and older as a catch-up contribution.
The account, available at Tropical Financial Credit Union, has several advantages over other forms of saving and investing. Consider these financial benefits:
- Contributions to the account are tax-deductible, reducing your taxable income. The balance grows tax-free, and withdrawals for qualified medical expenses are not taxed as income.
- HSAs offer more flexibility and control. Unlike Flexible Spending Accounts, HSA funds roll over from year to year so that you can save long-term for medical needs, and there is no pressure to spend the money by year’s end to avoid losing it.
- HSAs are yours alone. You can take your HSA with you if you change jobs or retire. The balance can be added to no matter where you are employed and funds are withdrawn to pay medical expenses.
- After age 65, you can withdraw funds for non-medical expenses penalty-free. However, you will pay income taxes on the money. This added flexibility makes an HSA an attractive option when planning for healthcare costs in retirement.
To open an HSA, you must be enrolled in what’s called a high deductible health plan, or HDHP. The annual deductible must be at least $1,600 for single-person coverage or $3,200 for family coverage. Out-of-pocket expenses cannot exceed $8,050 or $16,100, respectively
Before you open an HSA, be sure to ask these three questions:
- What are the fees and account maintenance costs?
- The costs can add up. Choosing an HSA provider with transparent and competitive fees can help maximize the financial benefits of the account.
- What investment options are available?
- When using an HSA as an investment tool, ask about places to put your money. Only savings and similar deposit accounts at Tropical Financial are federally insured.
- How can I access and manage my account?
- Inquire about online and mobile banking capabilities, such as Tropical Financial’s mobile deposit service, online banking, and financial education resources to track and manage your healthcare expenses.
Once you have an HSA, what’s the best way to use it? Here are four of the best methods:
Make a direct payment for qualified medical expenses. These include prescriptions, doctor visits, and other eligible healthcare costs. Using pre-tax dollars means 100% of your earnings go to medical expenses before they go to taxing entities.
Reimburse yourself for past medical expenses. If you've paid for eligible medical expenses out of pocket, you can reimburse yourself from your HSA anytime. Keep detailed records and receipts to substantiate the expenses in case you are audited.
Pay long-term care and retirement expenses. As noted earlier, you can use the money for non-medical expenses penalty-free after age 65. This includes long-term care insurance premiums and other qualified retirement healthcare expenses.
Build a reserve for health-related emergencies. Unexpected medical emergencies can be expensive. Paying them with borrowed money will cost even more. HSA funds can be a valuable source of immediate cash then and give you peace of mind now knowing that you have a dedicated account to cover these costs.