What is a Health Savings Account (HSA)? A Beginner’s Guide
As healthcare costs continue to rise, it can be hard to keep up with all of the ways to pay for medical expenses. One option that you may want to consider is a Health Savings Account, or HSA. What is an HSA? How does it work? Here’s a beginner’s guide to help you understand the basics.
What is an HSA?
An HSA is a type of savings account that you can use to pay for medical expenses. Unlike other types of savings accounts, you can only use the money in an HSA for approved medical expenses. You can’t use it for anything else.
You must have a high-deductible health plan to qualify for an HSA. This means that your health insurance plan must have a deductible of at least $1,400 for an individual or $2,800 for a family in 2021. If your plan meets this requirement, you can contribute to an HSA.
How does an HSA work?
When you contribute to an HSA, you’re putting money into a savings account. You can then use this money to pay for medical expenses, such as doctor visits or prescriptions. You can contribute to your HSA through payroll deductions, and some employers may even match your contributions.
One of the advantages of an HSA is that your contributions are tax-deductible. This means that you can deduct the amount you contribute to your HSA from your taxable income. This can help lower your tax bill.
Another advantage of an HSA is that your money grows tax-free. If you invest your HSA funds, any earnings are also tax-free. This means that your money can continue to grow over time, giving you more funds to pay for medical expenses.
What are the benefits of an HSA?
There are several benefits to having an HSA. One of the biggest benefits is that it can help you save money on healthcare costs. If you have a high-deductible health plan, you’ll need to pay for medical expenses out of pocket until you reach your deductible. With an HSA, you can use your tax-free funds to pay for these expenses.
Another benefit of an HSA is that it can help you save for future healthcare costs. You can contribute to your HSA every year, and your funds will continue to grow tax-free. This means that you’ll have more money to pay for medical expenses in the future.
Finally, an HSA can give you more control over your healthcare spending. When you have an HSA, you can make decisions about which medical expenses to pay for and how to use your funds. This can help you save money and get the care that you need.
Conclusion
If you have a high-deductible health plan, an HSA can be a valuable tool for managing your healthcare costs. By contributing to an HSA, you can save money on taxes and pay for medical expenses with tax-free funds. Plus, your money can continue to grow over time, giving you more funds to pay for future medical expenses. If you’re considering an HSA, be sure to talk to your employer or a financial advisor to learn more.
