How to Open a Health Savings Account
A medical savings account is a smart way to get rid of tax-free excess money to pay for approved medical expenses. These accounts are more useful than ever, especially during a pandemic. Usually your employer offers the opportunity to open an HSA. But if you don’t have employer’s insurance, you still have options.
How to open an HSA if your employer doesn’t offer one
As long as you qualify, you can open an HSA at many banks and brokerages. To be eligible for the HSA, you must be enrolled in a health insurance plan with a deductible of at least $ 1,350 per person. If you belong to a bank you’re comfortable with, start with and see what they have to offer you, although your insurer should also have options (call them or log into your account online to see). You can also use this search tool . Fidelity has great features.
HSA is a good investment because it offers triple tax savings. Contributions are tax deductible (or are made pre-tax if funded by withholding), interest income is tax deductible, and you can make payments at any time to pay for medical expenses, including deductions, without tax penalties. Unlike the FSA, you don’t lose your fund balances at the end of the year – you can keep them invested.
You can also withdraw money after age 65 for non-medical expenses, but in this case it will be taxed (no penalty only), so while the funds in the account will grow tax-free, this is not quite like the Roth IRA. And if you take the under 65 giveaway for unqualified expenses, including things like cosmetic surgery or health club memberships, you get a 20 percent penalty and pay income tax.
What contribution should you make?
The minimum to open an HSA will depend on where you choose to start your account; a reasonable starting balance to aim for is $ 500, which will give you a variety of options. As Investor’s Business Daily points out, if you plan on using your HSA for medical purposes this year, you need to look for an account with good debit card functionality and online banking options. If you are considering it as a retirement account, long-term investment options and fees will be your key considerations.
Wherever you open your account, there are likely to be a range of investment options, including mutual funds, ETFs, and fixed date funds, although your choices will be different everywhere. If your insurer or bank does not offer dated funds, you can try to replicate them, but the main thing to look out for are fees: take into account monthly account fees, trading fees, investment fees, inaction fees accounts and closing fees.
More importantly, according to the IRS, you can deposit up to $ 3,550 in HSA this year (or $ 7,100 for family insurance) tax-free. If you plan to set aside more or are counting on HSA as your primary retirement account at the moment, consider opening a secondary account. As medical costs continue to rise, experts will advise you to top up the HSA premium and then invest any additional funds in an IRA or Roth. It’s not a bad idea – as long as you remember that in retirement you will have to deal with more than just healthcare costs. This post was originally published in 2018 and edited and updated on November 11, 2020 to add updated information, links, and context for 2020.