A health savings account (HSA) is a tax-advantaged investment vehicle that allows individuals with high-deductible health plans to set aside money for medical expenses. HSAs offer several investing benefits that make them an attractive option for individuals looking to save on healthcare costs.
- Tax advantages: Contributions to an HSA are tax-deductible or made with pre-tax dollars, depending on how the account is set up. This means that money contributed to an HSA is not subject to federal income tax, which can lead to significant tax savings. In addition, withdrawals from an HSA used to pay for qualifying medical expenses are tax-free.
- Investment options: Many HSA providers offer investment options, such as mutual funds, that allow account holders to grow their HSA balance over time. This can be a particularly useful feature for individuals who are saving for future healthcare costs, as it allows them to take advantage of the potential for compound growth.
- Portability: HSAs are portable, meaning that they can be used to pay for medical expenses regardless of whether an individual changes employers or health insurance plans. This makes them a flexible and convenient option for saving for future healthcare costs.
- High contribution limits: The contribution limits for HSAs are generally higher than those for other tax-advantaged investment vehicles, such as flexible spending accounts (FSAs). This allows individuals to set aside a larger amount of money for medical expenses.
- No “use it or lose it” rule: Unlike FSAs, HSAs do not have a “use it or lose it” rule, which means that account holders can roll over their unused balances from one year to the next. This allows individuals to build up a larger balance over time and have a bigger cushion to draw from when they need it.
HSAs offer a number of investing benefits that make them an attractive option for individuals looking to save for healthcare costs. The tax advantages, investment options, portability, high contribution limits, and lack of a “use it or lose it” rule all make HSAs a valuable tool for saving for future medical expenses.