Personal Wellness Account vs HSA: Which Savings Account is Right for You?
It’s no secret that healthcare costs in the United States are often outrageous. As a result, many people are turning towards savings accounts designed specifically for healthcare expenses. Two popular options are Personal Wellness Accounts (PWA) and Health Savings Accounts (HSA). While both accounts offer tax benefits, they differ in terms of eligibility, contribution limits, and withdrawal options. In this article, we’ll explore these differences and help you determine which savings account is right for you.
What are Personal Wellness Accounts?
Personal Wellness Accounts are designed to help individuals manage their healthcare expenses. They are typically offered through an employer and allow employees to set aside a certain amount of money each year to use for healthcare expenses. PWAs are similar to a Flexible Spending Account (FSA), but with one significant difference: funds that are not used by the end of the year roll over to the next year. This feature makes PWAs an attractive option for those who want to save money for future healthcare expenses.
What are Health Savings Accounts?
Health Savings Accounts are savings accounts specifically designed to help individuals pay for qualified medical expenses. They are available to individuals who are covered by a High Deductible Health Plan (HDHP). HSAs allow account holders to contribute money on a tax-free basis, and the funds can be used for a wide variety of healthcare expenses. Additionally, HSAs offer the opportunity for individuals to invest their funds, which can help the account grow over time.
Eligibility
One of the most significant differences between PWAs and HSAs is eligibility. PWAs are typically offered through an employer and are available to all employees, regardless of their health plan. On the other hand, HSAs are only available to individuals who are covered by a High Deductible Health Plan (HDHP). HDHPs are health insurance plans with a higher deductible than traditional health insurance plans. To be eligible for an HSA, the deductible must be at least $1,400 for individuals and $2,800 for families.
Contribution Limits
Another significant difference between PWAs and HSAs is contribution limits. For 2021, the contribution limit for PWAs is $2,750 for individuals and $5,500 for families. These limits apply to both employee and employer contributions. HSAs have higher contribution limits, with a maximum contribution of $3,600 for individuals and $7,200 for families. Additionally, individuals who are 55 or older can make an additional catch-up contribution of $1,000 per year.
Withdrawal Options
Finally, PWAs and HSAs differ in terms of withdrawal options. PWAs allow account holders to use their funds for a wide variety of healthcare expenses, including deductibles, copayments, and prescriptions. However, funds that are not used by the end of the year can only be rolled over to the next year, up to a certain limit. HSAs allow account holders to use their funds for similar expenses, but with one notable exception: funds can also be used for retirement expenses. This feature makes HSAs an attractive option for those who want to save for future healthcare expenses while also planning for retirement.
Conclusion
Personal Wellness Accounts and Health Savings Accounts are both viable options for individuals looking to save money for healthcare expenses. While both accounts offer tax benefits, they differ in terms of eligibility, contribution limits, and withdrawal options. If you are eligible for an HSA, it is likely the better option due to higher contribution limits and the ability to invest your funds. If you are not eligible for an HSA, a PWA is still a great way to save money for healthcare expenses while taking advantage of tax benefits. Regardless of which savings account you choose, be sure to do your research and consult with a financial professional to ensure that you are making the best decision for your individual needs.
