Investing

What Is a Health Savings Account and Should I Open One?

A Health Savings Account (HSA) is a tax-advantaged savings plan where you can stash pre-tax money for eligible healthcare expenses, including deductibles, co-pays, dental, vision and other medical expenses. Like a Flexible Spending Account (FSA), it can help ease the burden of high out-of-pocket costs and lowers your taxable income, which could lead to a lower tax bill.

In 2017, individuals can contribute up to $3,400 to an HSA, while families can contribute up to $6,750. In 2018, those figures increase to $3,450 for individuals and $6,750 for families. If you’re 55 or older, you can kick in another $1,000.

When you open an HSA—either through your work-sponsored health insurance plan or at a bank or financial institution—you’ll typically get a debit card to access your funds. Once money’s in your account, it’s yours for good: Your balance rolls over from year to year, and the account is portable. That means if you leave your job, the account follows you. (But note that if you use the money on non-qualified medical purchases, you’ll be expected to pay income taxes.) Another benefit of HSA accounts is that the money can be invested. The money grows, and can be distributed, totally tax-free.

There’s one big catch to all these perks: To sign up for an HSA, you must be enrolled in a high-deductible health plan. As you can probably guess, this type of health insurance policy has a high deductible and out-of-pocket costs—which is why a tool like an HSA can be so valuable. In 2018, high-deductible health plans will have a minimum deductible of $1,350 for individuals and $2,700 for families. Maximum out-of-pocket costs will be $6,650 for individuals and $13,300 for families.

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