A Millennial Asks: Is an HSA a Good Deal?
Because your employer offers an HSA as a benefit, you may be able to have your contributions automatically deducted from your paycheck. And if you're lucky, your employer may also offer contributions. Check with your benefits provider.
If you're on your own in making contributions, you may be able to set up an automatic monthly deduction from your bank account or simply write a check to the HSA account. But however you make the payments, make them consistently. You don't have to contribute the maximum, but if you can, that can be a great way to grow your money.
Here's an example that may convince you. Let's say you contribute the current individual maximum of $3,500 per year for 35 years. That may sound like a lot, but it's actually about $292 per month pre-tax deduction. Let's also say that you withdraw an average of $1,000 a year in medical expenses. If you earned an annual average of 5% on the balance of your HSA, you'd end up with about $250,000.
A Couple More Things to Think About
To me, the pluses generally far outweigh the minuses, but as always, do your homework to make sure an HSA is the right choice for you. First, get the details on any high-deductible health plan. While premiums may be lower, there may be medical network requirements or restrictions.
And while the upfront tax advantage of an HSA is great, an HDHP means you'll have a higher deductible to cover. That could mean higher out-of-pocket health care expenses until you meet the deductible (helping to balance that out, most HDHPs provide preventative services such as routine checkups, prenatal and well-child care, immunizations and certain screening services before having to meet the annual deductible.) But the idea is reduced premiums plus HSA tax advantages will compensate for that.
You'll also want to check for potential fees related to an HSA account. There may be a monthly maintenance fee as well as costs related to checks or debit cards. Also be aware of investing costs if you invest your HSA in mutual funds or other securities. Be sure to get the details from your employer or the financial institution providing the HSA.
That said, I'd definitely consider taking advantage of this benefit. It can be a win in terms of your medical needs, taxes and long-term financial health. Sounds like a good deal to me.
Carrie Schwab-Pomerantz, Certified Financial Planner, is president of the Charles Schwab Foundation and author of "The Charles Schwab Guide to Finances After Fifty." Read more at http://schwab.com/book. You can email Carrie at email@example.com. The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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