Despite being less popular than investments such as 401(k) plans, individual retirement accounts, and 529 college savings plans, Health Savings Accounts provide tax benefits to its’ beneficiaries. The first advantage of an HSA is that contributions made are tax-deductible. Second, any interest or other earnings on the account are tax free. Lastly, owners of the account are allowed tax-free withdrawals to cover medical expenses.
To qualify for an HSA, you must be enrolled in a high deductible health plan. In addition, you cannot be enrolled in Medicare. See IRS Publication 969 for more information.
HSA’s were established in 2003 and are becoming more popular as companies continue to shift health care costs away from the company towards the employees. With the rising costs associated with the healthcare industry as a whole, funding an HSA is extremely beneficial. Medical expenses play a role in nearly everyone’s lives at some point, so it is ideal to be able to contribute to those costs while taking advantage of the deduction from those contributions, as well as enjoying the tax-free nature of the plan.
When planning for the future, HSA’s should not be overlooked as they have many positive advantages.