Key Takeaways
- Health Savings Accounts (HSAs) are a way to pay for medical expenses with tax-free money.
- The money you put into an HSA grows tax deferred.
- HSAs can also serve as another retirement account.
If you have a high deductible health insurance policy, your employer may give you the option of opening a Health Savings Account, or HSA. When your deductible is high, you will need to pay more out of pocket for your medical expenses, so the government allows you to receive a full deduction on anything you put away into your HSA. It grows tax deferred while it’s in your account, and you can take the money out tax free when you have medical expenses to pay for.
But an HSA can also serve as a retirement account. What this means is that, if you have money left over in your HSA account at retirement age, you can withdraw that money for retirement, paying taxes on it like you would with a 401(k).
Why might you want to do this? Well, first off, it’s an extra savings account, but another reason is that the future is unknown, isn’t it? You may find yourself facing a major medical expense at some point, in which case, your HSA would be there for you.
Additionally, you’re young and most young people don’t have too many physical ailments. However, as you age, chances are you’ll run into some medical expenses that you didn’t have earlier in life. So for younger folks, HSAs tend to be a decent way to save extra dollars, while not necessarily having to spend it on healthcare.
If you’ve fully funded your 401(k) and are looking to do more, an HSA may be an option for you. This year, in particular, you may have extra dollars, due to receiving a stimulus check or not spending as much in 2020 as you have in previous years. Opening a Health Savings Account is something to consider, going into 2021. Until next time, enjoy.