Do you have high-deductible health insurance? If so, you may have the option to open a health savings account (HSA) to help buffer your finances against damaging medical debt.
If you can get an HSA, you definitely should. Here’s why.
HSAs are tax-advantaged savings accounts that can be combined with high-deductible health plans (HDHPs) to help you pay for medical expenses. You must already have an HDHP to get an HSA.
Pro tip! If you don’t already have an HDHP, start looking for one! According to the IRS, in 2019, health insurance deductibles of at least $1,350 for individuals or $2,700 for families are required to meet the HDHP definition.
You can use funds stored away in your HSA to pay for the deductible, copayments, coinsurance, and any eligible medical expense listed on your bill.
Advantages of an HSA
Your contributions are 100 percent tax deductible, withdrawals are tax-free, interest earned is tax-deferred, and your money will continue to grow in your savings account for as long as it’s in there, even if it isn’t used up in a year, unlike flexible spending accounts (FSAs).
An FSA is a type of medical expense reimbursement plan that forfeits unused funds at year’s end. Check out this comprehensive article to learn more about medical reimbursement.
How to Open an HSA
Most banks and brokerages offer HSAs to individuals who qualify for them, and your health insurance provider should be able to help you open one as well. If you have high-deductible health insurance through your employer, they may be able to help you set up an HSA as well, but you don’t have to use an HSA your HDHP provider offers.
Find the Right One for You
From an objective standpoint, there’s no single best HSA, and choosing the right HSA for your healthcare needs isn’t easy. You have access to hundreds of options, each with its own set of fees, policies, interest rates and even investment opportunities. But we do have a couple of tips to help you find the right one for you.
Pro tip! To start comparing HSA options, check out Devenir’s handy-dandy HSA comparison tool.
Compare fees and interest rates
Pay close attention to fees. You may have to pay a fee every time you try to do something to your account, like open or close it, contribute over the maximum yearly allowance, write checks, and so on. Oh, and there are monthly fees, too. Try to find an HSA with fewer fees.
Also, you’ll want to earn as much interest as possible over the year to help you grow your savings. Look for HSAs that offer tiered interest rates — that is, interest rates that increase as your account balance increases. If you stumble across an HSA with a tiered interest rate and fewer fees, you’re on the right track.
Compare investment options
You can use HSAs to help save for long-term financial goals and retirement, and some come with a variety of investment options attached to help! Make sure, though, that you choose one with investment options that have performed well in the market. And note that investing through an HSA usually means you have to pay more fees on the account!
The Bottom Line
Another simple way to find a great HSA is simply by asking around. Maybe a friend or relative has one they like. Don’t wait to get one, though — money needs time to grow in a savings account, and you need to make sure you have enough stored away to manage an imposing medical bill on time.
This article is provided by NAIFA educational partner EveryIncome. Find a financial professional to help manage your finances with NAIFA's one-of-a-kind Find An Advisor tool.
