MoneyDo: Consider Opening – Or Contributing To – A Health Savings Account.


Health care, both during working years and retirement years, is a large expense and continues to grow.  The average growth rate for the past several years has been between 6%-7%, growing at a rate faster than inflation[1].

The rapid increase of costs doesn’t appear to be changing anytime soon – which has caused many of the people we help to ask what can be done today to help plan for future healthcare costs and retirement.

Health Savings Accounts (HSA) are a mechanism to save for health care expenses on a pre-tax basis. The accounts are generally available for those on High Deducible Health Plans (HDHP).

If you’re wondering if you can contribute to an HSA, check with your plan provider or at your plan’s website to see if it’s HSA eligible. The number of plans eligible has steadily increased, with nearly 25% eligible in 2015.

Almost 40% of Americans between the age of 18 and 64 have a HDHP[2], which usually results in higher out-of-pocket costs. Funding a HSA can help pay for those expenses.

The contribution limit for 2019 is:

  • $7,000 (family) or $3,500 (single)
  • Catch-up if over 55 of $1,000

If you have a HSA, do you know if you’re fully funding it?  Here are a couple reasons why you might want to look into it:

  • Contributions are made on a pre-tax basis if through payroll
  • You can receive a tax deduction if contributions are paid out of pocket
  • Accounts grow tax-free if distributions are used for medical expenses
  • If you contribute through payroll can also save 7.65% in FICA taxes
  • If used for medical expenses money comes out tax free
  • Money comes out penalty-free, not income tax-free, if over 65 and not used for medical expenses. They are treated similar to IRA withdrawals.
  • Can stock pile expenses and file for reimbursement at once, which can help supplement income in years when income tax might be high.
  • To quickly fund a HSA you can do a one-time tax-free rollover from a IRA to a HSA, this can help get your HSA started

When you go to review your healthcare election, or even to pay an expense, review how you’re saving for those expenses. A HSA is potentially a great savings tool for health care.