This year in 2020 I decided to try out a new insurance
plan to see if it would work for us. It is a major medical plan with a
high deductible and an attached Health Savings Account also known as an
HSA. The caveat was that along with lower monthly premiums (and the
deductible was only $500 more than what we had before) my employer was going to
help fund the HSA with some money upfront and then a monthly contribution on
top of that. Seemed like a pretty good deal so I figured I’d give it a
shot.
For us it worked out really well. Once I had our
emergency fund fully funded I felt even better about it. I was able to
get a prescription discount card through AARP so I felt that would help us
should we get sick and require medication. None of us take any prescribed
medication on a regular basis.
The savings on our insurance premiums was significant plus
adding what my employer is willing to kick in to the pot was nothing to sneeze
at either. And although all office visits are not covered all of our well
care visits still are. Additionally, no matter what, the money that goes
into my HSA in is mine to keep whether I change insurance plans, change jobs or
retire. It is nice to know that I have an extra fund available to help
cover medical expenses.
Right now traditional IRAs, ROTHs and 401(k) plans aren’t
growing as much this year so instead of focusing as much on those types of
accounts I decided to work on funding the HSA account this year. Not only
do I get to have a tax sheltered account to set aside funds for our medical
expenses, but whatever I take out of it will not be taxed as income
either. The bonus of an account like this too is that once I turn 65 I
can take non-medical funds out of it penalty free and will not be taxed on that
money either.
I consider my Healthy Savings Account just another tool in
my arsenal to help me to prepare for my future. It is also another way
not to “store all of my eggs in one basket”. Plus, the added tax benefits
I get right now will help a lot when I go to file my tax returns for this
year. Any opportunity I have to save for the future and reap the benefits
offered to me in tax credits I’m going to jump all over. I think that is
just plain smart.
Good for you! We switched to an HSA over 10 years ago and we have a nice savings account. Makes me feel less nervous should we have a major medical crisis. It really is the way to go if you can get the savings account set up before you have any major medical issues. Like you said, it is MY money!
ReplyDeleteYes! Don't you just love that?!
DeleteLove the HSA I put $ into for years. It's a wonderful extension of an emergency fund. One thing to consider: save all EOBs for the long haul. If you should find yourself in a bind 15y from now, you can draw money out of it based on all those past EOBs and not pay taxes. It doesn't have to be used for current medical costs!
ReplyDeleteI will have to look into that. :)
DeleteWe opened an HSA (12 years ago) after a long history of good health and low medical expenses, thinking that we would build up a quick balance. Later that same year I was diagnosed with an expensive-to-treat disease (Rheumatoid Arthritis). Even so, we have been very happy to have the HSA. Our deductible is quite high ($4500/max out of pocket $6750) and we meet the max by early summer every year. We also contribute the maximum the IRS allows to the HSA yearly and pay all medical bills out of it, resulting in an automatic discount of our medical costs by our marginal tax rate. Lots of times HSAs are suggested to people who have low medical expenses, but they can be useful even for those who do not. One small addition to your fine overview of them: money taken from the HSA after age 65 that is NOT used for medical expenses is not subject to any penalty but it is taxable as income in the year withdrawn. In that way it is very like a traditional (not Roth) IRA. The exception would be if you have saved receipts for medical expenses you paid out of pocket over the time you had a qualifying plan. You can then later claim a reimbursement to yourself and it is not taxable. Love the great blog!
ReplyDeleteI did briefly mention the part about using non medical funds after age 65. You are absolutely correct. In fact, right now it is a better option to invest in the HSA than the Roth. You get the tax benefit on the front and the back side. :0)
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