What Is The Health Savings Account (aka The HSA)?

In short, yes – I mean that’s why I wrote this post! Let’s go over the benefits in more detail. 

• Triple tax advantaged account – Again, this is a truly tax free account for most folks. You can choose to pay off medical expenses with pre-taxed income or choose to invest your HSA contributions and allow your contributions to grow tax free to use later. *Note: As of August 2020, you can enjoy the triple tax free benefit for US federal taxes and 48 state taxes, excluding California and New Jersey. California has recently introduced a bill to align with federal HSA law but it’s still pending.
• Sometimes employers help fund HSA accounts – Some employers contribute a certain amount towards your HSA if you’re enrolled in the HDHP and HSA. Employers actually get a tax benefit from contributing to their employees’ HSAs as well. My company offers $500/year which is usually way more than I averagely spend towards health related expenses as a young person with no health conditions.
• Lots of flexibility
  • Reimburse your future self – You can pay yourself back for any previous qualified medical expenses you paid for. This benefit only applies to expenses that were paid for after you officially opened your HSA account, so make sure you keep your receipts. For example, say you had to pay $2,000 out of pocket for a small surgery, but had an emergency fund you’d rather withdraw from to allow your HSA contributions to continue growing. Well, if you kept a record of the receipt and 5 years later decided you wanted to take $2,000 from your HSA fund for a vacation, you can choose to pay yourself back for that $2,000 surgery. There’s no reimbursement period so you can pay yourself whenever!
  • Ability to choose your HSA provider – As long as you’re qualified, you can choose who your HSA provider is, even if your company already has a HSA provider picked out. However, if your company has a pre-selected HSA provider, allows HSA contributions to be made via payroll (more specifically a cafeteria plan), and there’s little to no HSA fees, I’d stick with your company’s HSA provider. Doing so allows you to avoid paying FICA taxes (Social Security and Medicare taxes) of 7.65% on HSA contributions. Otherwise, you’d miss out on that sweet additional 7.65% in tax savings. Also, if your employer helps fund your HSA they may only do so if you’re enrolled in their selected HSA provider. If your company doesn’t have a pre-selected HSA provider or the one chosen is truly terrible, Fidelity is currently offering a no minimum, fee-free HSA.
  • HSA funds can be invested or kept in cash – So actually, HSAs are way better than bank accounts because you can choose to keep the funds in cash, invest it, or do both! If you invest it, I suggest investing in index funds like VSTAX, VTI, or something equivalent. If you want to be very conservative, you can even invest in bonds, your choice!
  • You can use the HSA like a Traditional IRA – Angela, what if I’m Chris Traeger irl (Parks and Rec reference) and never have any health expenses until death?! First of all, if that’s really you, please teach this 26 year old trapped in an 80 year old body how you do it. Secondly, no worries Traeger, all those additional HSA savings won’t go to waste because once you’re over 65 years old, you can withdraw funds from the HSA account for any reason, penalty free! You’ll just have to pay income tax on the withdrawn funds like you would with a Traditional IRA.
  • You keep your HSA even when you switch companies or switch to a non HDHP – Again, like the IRA, the HSA is a personal account and therefore doesn’t disappear due to a company change, job loss, health plan switch, etc. Whatever you contribute will stay yours! One thing to note is that companies typically pay the HSA monthly fee on behalf of their employees and if you leave the company, the fees will most likely come out of your HSA account. However, the IRS allows HSA holders to “roll over” HSA funds to a new HSA provider every 12 months so if the fees are expensive you can choose a better HSA provider.