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Happy Monday friends, hope everyone had a good Easter weekend.

This week, let's take a step away from the budgets, the spreadsheets, and excel, eh? I have another tasty kind of finance tidbit for you this week.

It's HSA's - Health Savings Accounts - It's a very cool account that often gets overlooked, so let’s discuss it!

WHAT IS AN HSA?

Well, it's a savings/investment account that you can use for qualified health expenses, provided you meet some criteria. You can also use it as investment account not unlike an IRA in some ways (We’ll get to that). In order to open an account, here’s what you need:

- Be covered by a qualified HDHP (High Deductible Healthcare Plan)

o If employed, your employer should offer a HDHP option during your annual health benefits enrollment. The premiums are lower than other plans, but your deductible is significantly higher (hence the name) than other plans.

o Ideally HDHP’s are a good fit for people who can afford a higher deductible if something happens and aren’t dealing with expensive, recurring medical expenses that are going towards your deductible.

- Cannot be claimed as a dependent, no other medical coverage,

- Open an account with an institution that offers this account (Fidelity, HealthEquity, HSA Bank, etc)

o You’ll be provided a debit card that you can use for qualified expenses. Or you can also reimburse yourself to your regular bank account.

- Contribute to your account

o You can contribute pre-tax, after-tax, and some employers may even contribute to one too! Free money!

ARE THERE ANY DRAWBACKS?

Well, yes. HDHP’s aren’t for everyone as I mentioned before. If you withdraw your money before the age of 65 for non-qualified medical expenses, the IRS is going to charge you a 20% penalty on the amount withdrawn. So ya might wanna keep that in mind.

You can’t borrow against your HSA either, if that matters to you.

If you lose your HDHP plan, you can’t contribute anymore. However your account is your own, meaning if you change jobs /get laid off, you take it with you and keep all the funds in it, even if your employer contributed.

WHAT ARE THE BENEFITS?

Ah, my favorite part. Do you like paying taxes? No? Yeah, me either. HSA’s offer a triple tax advantage. Here’s what I mean:

1. You contribute to the account pre-tax.

2. The investment gains in the account are tax-free.

3. When taking money out for qualified expenses, that amount is not taxed either.

Neat, huh? Also, the money you contribute does not expire ever unlike an FSA (Flexible Spending Account). If haven’t sold you on it yet, there’s one thing that I alluded to before how this account can be like an IRA (almost).

After you turn 65, you can withdraw the money without any penalty like I mentioned before. In effect, it turns into an IRA or 401k. Kinda. For those respective accounts you can withdraw without penalties at age 59.5. But the similarities here are that when you withdraw, you pay income tax on the withdrawals.

In essence, you can use an HSA to supplement your retirement savings as it’s treated as a 401k or IRA once you hit age 65. There are no required minimum distributions either. You can even use the funds to pay for Medicare premiums when that day comes.

Still here? Noice. Now go open an HSA! I like Fidelity the best as it offers the most flexibility out of all the HSA accounts I’ve seen.

Also, still need that budget template? I gotchu. Check it out below:

As always, Stay Frosty my friends.

Andrew

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