If you’re enrolled in a qualifying, high-deductible health plan (HDHP), you have access to a special type of savings account called a health savings account (HSA).
4 reasons to consider an HSA
- Your company may make contributions to your HSA on your behalf. While HDHPs have a higher deductible that must be met before the plan covers medical expenses, the tradeoff is a lower premium (the amount you pay to buy your insurance coverage). Both you and your employer pay less for HDHP coverage so your company may contribute to your HSA to help cover the expense of the deductible, should you incur medical expenses.
- You have access to a triple tax benefit.
- Contributions to your HSA are tax deductible, meaning your taxable income is reduced by the amount of your contributions in the year in which you contribute.
- You can invest your HSA, similar to a 401(k) plan. Your interest and investment earnings aren’t taxed.
- Distributions to cover qualified medical expenses aren’t taxed. (Other distributions would be included in your taxable income and may be subject to an additional tax of 20%.)
- Your HSA is yours forever.
Unlike flexible spending accounts (FSAs), there is no “use it or lose it” policy. You can build a balance in your HSA that rolls over from year to year. There’s no limit on how much you can have in your account and the account is yours to keep—even if you change jobs. Should you use your HSA as a long-term investment, you could reap the same benefits as other long-held investments, like a 401(k) plan. - Later in life, your HSA is an important savings vehicle. Once you turn 65, you can use your HSA funds to cover any expenses, without a tax penalty. Distributions for qualified medical expenses will still be tax-free, and withdrawals for any other purpose will be taxed at your ordinary income tax rate. An HSA can be a smart way to boost your savings for retirement, in addition to any 401(k), IRA or other retirement accounts you may have.
Getting Started
If you’re enrolled in a qualifying HDHP, you can activate your HSA option at any time during the year. Head to your company’s benefit portal to learn how you can open your HSA and potentially receive a company contribution.
Tip: Remember to account for your plan’s annual deductible and co-pays when deciding how much to contribute to your HSA.
If you have Ayco as a company benefit
Register or log in to learn more about this and other financial wellness topics or reach out to an Ayco coach for more on HSA contributions.
Unsure whether your company offers Ayco Financial Counseling? Contact your human resources representative.
