Three Benefits of Health Savings Accounts

Are you looking for ways to decrease the taxes you owe?  Or have some of your investments grow tax free?  If so, read on as I describe three benefits of Health Savings Accounts (HSA).

But before we get to the benefits, we have to detail who these plans are suitable for, and the one big disadvantage to them.

The big disadvantage to an HSA is that you must have a high deductible health insurance plan.  Which means that while your health insurance premiums may be lower, your out of pocket deductible will be higher than other plans.

So if you use your health insurance often, or have regular, recurring medical expenses, this high deductible plan may not be for you.  And if you don’t have a high deductible plan, then you can’t access the Health Savings Account.

Who is a better fit for these high deductible plans?  People who are healthy, don’t have many medical bills, and are able to save up enough cash to cover a higher deductible.

If that describes you, you should consider a Health Savings Account.

Three Benefits of Health Savings Accounts
Lowers Your Taxable Income

When you’re enrolled in a high deductible plan, and make a contribution to your Health Savings account, that contribution lowers the amount of your taxable income.  So the more money you put into your account, the less in taxes you have to pay that year.

Of course, there is a maximum amount that you can put in.  In 2018, the contribution limit is $3,450 for an individual and $6,900 for a family.

And once you put that money in the account, the benefits continue even more, because…

Your Health Savings Account Grows Tax-Free

Yup, that’s right:  When your HSA grows in value, you don’t owe any taxes on the growth.  Your money gets to grow and earn compound interest without having to pay the tax man.

Yet there is one major mistake that many people make: They forget to actually invest the money in their account.  96% of people with money in their Health Savings Account hold only cash.  Yikes!

If you open an HSA, make sure to invest it appropriately so you can take advantage of this tax-free investment growth.

No Taxes When You Withdraw From An HSA (For Qualified Medical Expenses)


Capping off the list of benefits to Health Savings Accounts is another tax benefit.  When you withdraw money from the account, so long as you are using the funds for a qualified medical expense, you won’t have to pay taxes on what you withdraw.

How will you know if it’s a qualified medical expense?  Check out this list before you take any action.

That means that you’ll put money into the account and lower your taxes.  Then you’ll be able to grow your money tax-free.  And when you need it, so long as it’s a qualified medical expense, you won’t owe any taxes on the withdrawal.  That is quite an amazing deal.

So if you’re healthy, don’t anticipate paying much in medical costs, and have the ability to cover a higher health insurance deductible, there are many benefits of Health Savings Accounts.  You can save money on your taxes, have another vehicle for tax-free investment growth, and not get taxed on it when you distribute it.

If you’d like to discuss Health Savings Accounts and see if they fit your situation, I’d love to talk to you.  You can email me at scott@forthrightfinances.com, call me at 424-258-4460, or contact me here.

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