A Millennial Asks: Is an HSA a Good Deal?
Understand, though, that if you take the money for something other than a qualified medical expense, it's a different story. In that case, you'd pay ordinary income taxes on the withdrawal and a penalty if you're under age 65. (After age 65, you can use an HSA to cover any expense; withdrawals would be subject to ordinary income tax but not a penalty.) Clearly, if you follow the rules, the tax deal can be significant.
It Rolls Over Year After Year
A particularly positive feature of an HSA is that if you don't use it, you don't lose it (unlike with a flexible savings account). The money is yours whether you need it immediately or several years down the road. So there's no pressure to spend for the sake of spending. If you don't need to use it, just let that money grow tax-free. Plus, an HSA is portable. If you change employers, you can take it with you.
You Are Eligible Regardless of Your Income
Unlike deductible IRAs or Roth IRAs, there is no income limit in order to contribute to an HSA. This means that higher wage earners can take advantage of a 100% federally tax-deductible account, unlike other deductions that they may be phased out of. In this way, an HSA can act as a supplemental IRA.
You Can Put It to Work for Your Future
An HSA isn't just a savings account; it can also be an investment account. So if you're fortunate enough not to need the money to cover ongoing medical costs, you may be able to invest the balance in mutual funds, stocks or fixed income (depending on what the plan offers and typically once a minimum account balance is reached).
Time is, of course, a key factor in taking full advantage of the investment growth potential of an HSA. And at your age, time is one of your greatest assets. Put it to work for you now and your HSA could be a supplement to your retirement accounts or maybe even a retirement account just for health care when you reach those golden -- yet often costly -- years.
The Catch: You Have to Fund It
Of course, all these benefits only work if you actually fund your HSA, and that means making annual contributions, ideally up to the maximum allowed. For 2019, contribution limits are $3,500 for an individual, $7,000 for a family. Plus, there's an extra $1,000 catch-up contribution for those 55 and over.