Those who have Health Savings Accounts (HSAs) are often crazy about them. Yet they get surprisingly little press. Perhaps it’s because many workers don’t really understand them. Or, more importantly, they simply aren’t aware of the many benefits these accounts can provide.
As a result, not a lot of employees are using them. And, among those who do, even less are saving much more than the minimum.
Here are 7 of the biggest benefits to owning HSAs and why you should take advantage of all the perks they offer.
- HSA contributions are deducted from your gross income. If you make the maximum contribution of $3,350 for individuals or $6,650 (plus an additional $1,000 if you’re over 55), you can substantially reduce your tax bill.
- Your money rolls over from one year to the next. An HSA is different from a Flexible Spending Account (FSA), in that it isn’t “use-it-or-lose-it.”
- The interest on HSA dollars is tax free. As long as your money stays in the account, it can grow without being subject to taxes.
- You can also invest in an HSA tax free. Many people don’t even realize they can invest the money in an HSA instead of simply saving it. Investment returns are just as tax-free as interest.
- Withdrawal penalties vanish at age 65, no matter what the reason. You’ll still pay taxes on withdrawals that don’t qualify as medical expenses, but no penalty applies.
- HSA money can go towards long-term care. This expense is a growing concern for seniors, and HSAs are a great option for funding it.
- You can supplement a 401(k) with HSA funds. Once you’re over 65 and no penalty applies, you can use HSA money to help fund a suffering retirement account.