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Lately, my dad’s been praising the benefits of having a health savings account. This year, he had the opportunity to get the most of his HSA — bad news for his health, but good news for his wallet (side note: Dad is now doing OK health-wise). If you have one or are considering one, here are all the HSA pros and cons to consider.<\/p>\n
But first, if you are looking for the 2016 and 2017 annual contribution limits for HSAs, here you go:<\/p>\n
I’ve spent time researching, calculating and mulling over whether an HSA is the best option for me. After a few conversations with Dad, I decided to put together a pro and con list to help me both understand HSAs and decide if I should open one.<\/p>\n
First, the basics:<\/strong><\/p>\n An HSA is a highly tax-advantaged account that lets you save money for health-related expenses. It’s essentially like an IRA or a savings account for your health. And, after you turn 65, it’s even more similar to an IRA, because you can take out money for non-health expenses.<\/p>\n An HSA is always tied to a High Deductible Health Plan, or HDHP, and many will get them through work. A survey by the Kaiser Family Foundation<\/a> revealed its mostly larger employers that offer HSAs: Fifty-two percent of firms with 1,000 or more workers offered this type of plan while only 25% of firms with 3 to 199 workers did. What’s most important to know here is that you can’t have an HSA if your health care comes from an HMO or a PPO — it has to be a high-deductible health plan. The IRS defines HDHP<\/a>s this way:<\/p>\n “For calendar year 2016, a ‘high deductible health plan’ is … a health plan with an annual deductible that is not less than $1,300 for self-only coverage or $2,600 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,550 for self-only coverage or $13,100 for family coverage.”<\/p>\n This should not be confused with a flexible spending account or FSA which can be used in conjunction with a traditional HMO or PPO.<\/p>\n Related >><\/strong> Readers share their experiences with HSAs<\/a><\/p>\n You can use money from your HSA to pay for a slew of health expenses, from contact lenses to acupuncture, mental healthcare or a midwife. You might be surprised at some of the things you can buy with your HSA money. HSA Center<\/a> has a complete list of eligible purchases.<\/p>\n The money you put in the HSA is tax-deductible. Also, the money you withdraw isn’t federally taxed, as long as you spend it on approved, health-related stuff. The HSA’s interest income isn’t federally taxed, either.<\/p>\n Unlike a Flexible Spending Arrangement or FSA, dollars in your HSA can rollover year to year.<\/p>\n I think the amount of interest I earned recently was something like six bucks. So my initial reaction is whoop de do,<\/em> but my frugal side reminds me that every little bit helps.<\/p>\n The most obvious benefit of the HSA is that you’re funding the future. You’re being responsible. The HSA is an emergency fund for your health.<\/p>\n With an HSA, you can take your balance with you if you leave a company. And if you really<\/em> hit tough times, you can even withdraw the HSA money to pay for non-health expenses. Of course, you’ll be taxed on that — plus, you’ll pay a penalty.<\/p>\n<\/span>What is an HSA?<\/span><\/h2>\n
<\/span>Who Can Get an HSA?<\/span><\/h2>\n
<\/span>Pros of Opening an HSA<\/span><\/h2>\n
Flexibility of Uses<\/strong><\/h3>\n
Tax Incentives<\/strong><\/h3>\n
No ‘Use-It-or-Lose-It”<\/h3>\n
You can Earn Interest<\/h3>\n
Responsible Planning <\/strong><\/h3>\n
You Can Take It With You<\/h3>\n