One of my favorite financial tools is the Health Savings Account (HSA). Your HSA can provide you with a tax-advantaged way to save for the future as part of your overall plan to build your wealth.
To qualify for an HSA, you need to be on a high-deductible healthcare plan, so that means a greater out of pocket responsibility. On the plus side, it also means lower monthly premiums, so you can put the money you save on premiums into your HSA to build up on your behalf.
If you want to use an HSA to your advantage, here are a few things to keep in mind:
Look for a Good Account
Just like any bank account, you should shop around for a good HSA. In some cases, you might have access to one through your work. If your employer offers an HSA plan, find out what rates are offered, and what requirements come with it. In some cases, an employer will match your HSA contribution. This is free money for your account, so, just as you would maximize a retirement account match, you should consider maxing out your HSA matching contribution.
If your employer doesn’t offer an HSA, you can look for your own. Many banks and even brokerages offer HSA accounts. Realize that these are considered investment accounts, and probably won’t be covered by FDIC insurance. In fact, the money in these accounts are invested. Depending on where you open your account, you might have the option of investing in index funds with higher rates of return.
Look for an account that allows you to invest your HSA money for a decent return. Also, be aware that there might be expenses related to the funds chosen for your HSA. Look for a good account with low costs.
Set Aside Money Regularly
Your contribution limit is set each year, based on whether you have an individual health insurance plan or a family plan. It’s also tied to inflation, so it can increase over time. For 2014, the contribution limit is $3,300 for an individual and $6,550 for a family. This is a tax deductible contribution, and if you use the money for qualified healthcare purchases, the money is tax-free upon withdrawal.
Set aside money regularly, just as you would for a retirement account. The money is yours, whether the account is through your employer or not. It rolls over year to year, so it can grow into a tidy nest egg that you can call on later for healthcare costs ranging from co-pays to out-of-pocket costs to medical supplies.
With the right account and a regular plan to set aside money, you can improve your financial situation with your HSA. Look for an account that suits you, and start contributing as soon as possible.