What is an HSA and why you need one.

Health Savings Accounts (HSAs) are savings accounts that help manage healthcare cost, they are similar to typical savings accounts, except they are used to pay for qualified health expenses such as copays and help meet insurance deductibles. If used correctly, HSAs can be a great way to invest money for long term goals. 

Here is why: 

1. Contributions made into HSAs are pre-taxed 

2. Expect growth in a HSA to be taxed free

3. Any withdrawals or distributions made from a HSA is also taxed free

If you are a healthy young adult and are not planning on starting a family, it is more beneficial to enroll in a high deductible insurance plan as you are less likely to attend doctor's appointments and utilize your insurance policy. High deductible plans typically have less coverage however benefits the consumer due to lower premiums, meaning overall you save more money throughout the year!

Contrary, health insurance policies that have additional benefits, typically have low deductibles, but higher premiums making them more expensive throughout the year. HSAs were established in 2003 to address the gap between high deductible insurance plans and medical expenses. As an incentive, many employers match employee contributions into HSA accounts. The money on your HSA is all yours, regardless if you use it or not, funds on the account rolls over annually. Unlike on a flex spending account which are typically managed by your employer, where if you don’t use the money within a year, you lose it.

Ideally a HSA allows one to save money for either planned or unforeseen medical expenses. It limits the need to obtain expensive health insurance and is one of the few recognized way to save money taxed free, unlike typical IRAs or other savings accounts. Funds on a HSA can later be invested into mutual funds, ETFs or stocks. The consumer is able to make their own contributions as well as receiving matched contributions from their employer. Health insurances and other companies may also provide monetary incentives to consumers for having a HSA. Once you, the consumer, turn 65 years old you gain the ability to use your HSA like a retirement account. The more taxed free money you invest in a HSA today, the greater the reward you will reap tomorrow!