HSA 101 (AKA your Health Savings Account) from the Experts at First Dollar
Guest Blog Written by First Dollar.
2020 was an unpredictable year that brought healthcare and personal finances sharply to the forefront of everyone’s mind. Trying to navigate the healthcare system often feels like 2020 all over again, but there are tactics and strategies to overcome these obstacles. One of the most powerful tools for health spending, saving, and planning is a Health Savings Account (HSA). This is why we (First Dollar) are here to make sure you have HSA basics in your tool belt. Because the High-deductible Health Plan + HSA combo might just be the savings tool you didn’t know you needed.
What’s an HSA again?
HSAs were introduced in 2003 to supplement the growing popularity of High Deductible Health Plans (HDHP). HDHPs are healthcare plans that often have a lower monthly premium but a higher deductible, leaving people with high out-of-pocket costs. Enter HSAs. This versatile savings account helps offset out of pocket expenses that come along with an HDHP. As more and more people choose HDHPs, many do not realize the benefits of utilizing the HSA for costs right now and savings for the future.
Understand your healthcare needs.
The number one thing to do before going all-in on an HSA is to understand your healthcare needs and the cost that comes with them. You can add this up on a monthly, quarterly, or yearly basis to set savings goals. This should include routine check-ups, prescriptions, psychotherapy, regularly purchased over-the-counter meds, medical equipment, dental needs, vision needs, and any self-elected procedures you might see in the future. Once you know all of these costs, you can set savings goals accordingly. At the very least, save enough to cover the expenses you know you’ll have. Take it to the next level by saving enough to cover your deductible so that you never actually pay out of pocket before insurance steps in. And if you really want to plan ahead, save your out-of-pocket maximum (varies by plan) so you’re ready for anything.
Maximize savings with the triple-tax advantaged account.
Unlike any other savings account on the market, an HSA is triple-tax advantaged. Money goes in pre-tax, money grows tax-free (and with interest), and you can use your HSA on qualified medical expenses without tax. So no matter what you’re doing with your HSA, you will always be reducing your taxable income one way or another. For example, if you’re making HSA contributions directly from your employer’s payroll, that income is not taxed because it’s going straight to your HSA. Depending on what income taxes look like in your state, you could be reducing your taxed income by hundreds or even thousands of dollars. For 2021, contribution limits are $3,600 for individuals and $7,200 for families, so imagine maxing your account out without being taxed along the way!
Grow your investment portfolio.
You can invest any of your HSA funds in stocks, mutual funds, and ETFs, with any gains coming back to you completely tax-free. Yes, MORE tax-free growth that goes straight to healthcare spending! There are many different strategies to maximize HSA investing. Whether you want to dedicate your HSA to investing to take full advantage of tax benefits or if you’d prefer to split up your funds, so there’s still some in the account for healthcare spending, your HSA is incredibly flexible to fit your goals and needs. At First Dollar, you have the ability to invest in the full market fee-free via TD Ameritrade.
Don’t be scared of the high deductible.
At first glance, the idea of having a high deductible is frightening because it takes quite a bit of out-of-pocket spending before you reap the benefits of health insurance. But this is your ticket to an HSA–they’re not offered with plans that are not HDHPs. Many employers now offer some form of an HDHP, but you can also get them from an insurance agent or your state’s healthcare exchange. If you’re not spending a lot of time at the doctor’s office or don’t have many prescription medications to worry about, spending tons of money on high premiums every month doesn’t make much sense. Even if you have a handful of medical needs, some strategies can make your HSA the best healthcare spending partner. Why spend money on healthcare that you’re not utilizing when you could just set that away in an HSA?
Plan for the future, right now.
The power of the HSA doesn’t stop there. If you’re planning for retirement or even looking to retire early, your HSA will turn into a traditional retirement account that can be spent on anything when you turn 65. Paired with other retirement accounts like a 401(k), you can be set for the future and finally take that dream vacation you’ve been planning for years. At First Dollar, we work to ensure people can prioritize their health now so that they have the future they’ve been dreaming of.
With healthcare and finances at the forefront of our lives right now, there is no better time to take advantage of an HSA. From the triple-tax benefits to the growing list of qualified medical expenses, you can utilize this savings vehicle to take care of you and your family’s healthcare spending and simultaneously save money (through cheaper premiums AND putting away money in your HSA). If you just switched to an HDHP during Open Enrollment or have new benefits to choose from with your employer, now’s the time to hop on the HSA train.
This blog was guest written by First Dollar. First Dollar is a Health Savings Account that actually cares about your health. No HSA does more to help improve what you’re saving and spending. Find out more at FirstDollar.com.
