BlackFIBlack: Are HSAs the Missing Key to Unlocking Your Financial Freedom?
Are HSAs the Missing Key to Unlocking Your Financial Freedom?
It’s now open enrollment season at my place of employment and a couple of people on my team asked me…
“What’s the difference between having an FSA and an HSA?”
- FSA = Flexible Spending Account
- HSA = Health Savings Account
Click here to understand the difference between the two accounts.
Since my family and I have been using an HSA for the past several years, I couldn’t wait to tell them how it’s benefited us and why I love them.
Now, FSAs can work for some people, because like HSAs, it lets you pay for medical-related expenses, and also contribute money pre-tax.
But in the end, I believe HSAs win out for these 5 main reasons:
- You can contribute more money and reduce your taxable income as a result. In 2024, you can contribute up to $3,100 as an individual ($8,300 with family high-deductible insurance plans). If you’re 55 years of age or older, you can add $1,000 more to that amount.
- You don’t lose your HSA contributions if they’re not used up at the end of the year. They roll over indefinitely. Here is a huge benefit over the FSA, which you have to bring down below a certain dollar amount each year, otherwise you could lose any money over the federal limit.
- You can invest part of your HSA contributions into the stock market or index funds. This allows you to potentially grow your account balance if the market does well…and not be taxed on the gains, if you still use them for qualifying medical expenses.
- You can keep the HSA account and the money you put in it even if you leave the employer or stop working altogether. You can even roll it over into a different account if you choose.
- After the age of 65, you don’t pay the 20 percent tax penalty for using the funds for non-medical expenses. (However, you would have to pay the regular annual income tax rate on the amount you didn’t use for medical expenses when you withdraw).
HSAs can be an incredible tool for streamlining your medical expenses while helping you save additional money, both on your medical insurance premiums and federal income taxes.
Just make sure you evaluate your overall healthcare needs, your particular financial situation, and be sure to check with your own accountant or tax professional to confirm how it will impact your particular circumstances, before making the decision whether to use an HSA or not.
For my family and I, HSAs have been part of our financial planning, and have saved us thousands in taxes and insurance premiums, on medical expenses we were already paying out of pocket…with pre-tax money.
Opening an HSA is one of the best first steps to getting your finances on track.
Credits:
- The Motley Fool
- U.S. Centers for Medicare and Medicaid Services
- GoodRx YouTube Channel
What are some ways you are unlocking your financial freedom?