10 Reasons You Should Consider a Health Savings Account (HSA)
In order to establish and fund an HSA, you must be enrolled in a qualified high deductible health plan or HDHP. Unfortunately some employees immediately eliminate HSA’s from consideration once they learn that the underlying health plan contains a high deductible. However, the benefits of an HSA cannot be ignored.
- Your health insurance premiums are typically less. When you enroll in a HDHP, your underlying health insurance premiums are typically less than a traditional PPO. Employees could take the health insurance premium savings and divert them directly into an HSA.
- HSA contributions are deductible from gross income. Your tax savings will be immediate if your contributions are run pre-tax via a payroll deduction. For many this will mean saving 20% or more on every dollar deposited in an HSA.
- Your HSA can earn tax free interest. Money in your HSA can earn interest and accumulate tax free.
- You can invest your HSA dollars. As your HSA balance grows, you can invest the money and your investments can grow tax free.
- No use it or lose it provision. Unlike Flexible Spending Accounts (FSA’s), money in an HSA will rollover from year to year.
- HSA dollars used for qualified expenses are not taxed. HSA’s offer triple tax savings. Contributions can flow into an HSA pre-tax, interest and investment income accumulates tax free, and qualified distributions are not taxed.
- You own the HSA. If you change jobs or retire, the HSA goes with you.
- Penalties for non-qualifed HSA distributions go away at age 65. You can use your HSA money for anything once you turn 65. You will have to pay ordinary taxes on distributions unless they are for qualified expenses. If the expense is qualified, you will continue to enjoy tax free treatment on your HSA distribution.
- Do you need long term care insurance? You can use money from your HSA tax free to pay a portion of your long term care premiums.
- You can let your HSA dollars grow and then pay yourself back later. Once your HSA is opened and you begin to incur qualified expenses, you do not have to use HSA funds to pay for these expenses. You could pay these expenses with other financial means and then reimburse yourself months or years later.
Employee enrollment in HDHP/HSA programs will increase as employees more clearly understand these benefits. Continual education and training is essential.