A Millennial Asks: Is an HSA a Good Deal?
Dear Carrie: I'm starting my first job and wondering about the HSA option that comes with my benefits package. Is this really a good deal? -- A Reader
Dear Reader: The short answer to your questions is a resounding "yes"; a health savings account can be a very good deal. This is especially true for someone like you who is just starting out. The combination of tax advantages and a long time horizon is ideal for making the most of this particular benefit, not only to handle potential medical expenses but also to help build long-term financial security. Here's why.
The Nuts and Bolts
An HSA is a tax-advantaged account available to those who have a high-deductible health plan (in 2019, deductibles of at least $1,350 for an individual, $2,700 for a family). One benefit of an HDHP is that monthly health insurance premiums are comparatively low.
For a young person with few medical expenses, that can be a pretty good deal right there (provided you can cover the higher deductible). But there's more. Similar to an IRA, an HSA lets you make annual contributions and offers significant tax perks. And that's where the good deal really starts.
There's a Triple Tax Advantage
One tax advantage is good. Three is better.
-- First, contributions to an HSA are federally tax-deductible, reducing your taxable income.
-- Second, both contributions and earnings grow federal tax-free.
-- Third, withdrawals for qualified out-of-pocket medical expenses are also tax free -- whenever you take them, no matter your age. Those expenses can include deductibles, copayments, prescriptions and necessary medical equipment as well as medical care not covered by insurance, such as dental, vision, hearing and long-term care. You can also use it to pay for medical expenses for a spouse or other dependent.