**Update to initial post: HSA limits for 2021 have increased!**
In my previous post, Annuity or Not?, I mentioned that one of the ways that I’m preparing for retirement is by contributing to my Health Savings Account (HSA). The HSA was designed to help offset health care costs. In order to qualify for an HSA, you must be covered under a high deductible health plan (HDHP). HDHPs usually have lower premiums in exchange for paying a higher deductible.
If your employer doesn’t offer an HSA, you can research (aka GOOGLE) banks and brokerages for availability. I personally have mine set up with Fidelity, along with my 401K and Roth IRA (not a paid advertisement, just sharing).
The HSA is my absolute favorite account and here’s why:
Tax free, tax free, tax free! Pre-taxed dollars are contributed to the HSA. Also, the money isn’t taxed when you spend it, as long as it’s used to cover qualified medical expenses. Furthermore, if you take advantage of the investing component of the HSA, the earnings will not be counted as income while in the HSA.
Not all HSAs provide the opportunity for investing; if you’re interested in investing be sure to inquire while researching providers. Also, if you’re organized and good at keeping up with receipts, you have the option to pay for qualified medical expenses out of pocket and request reimbursement at a later date (another way to allow time for your money to grow).
HSAs are not use it or lose it, so the account balances continually carry over from year to year. Additionally, the account stays with you, even if you change employers. The 2019 and 2020 limits for HDHPs and HSAs are as follows:
In 2020 the HSA contribution limit will increase by $100 under the family coverage. This makes me love my HSA even more!
Depending on your specific circumstances, the HSA may not be the best fit for you. But if you already have an HDHP (or considering one), it may be worth looking into.
“Good health is not something we can buy. However, it can be an extremely valuable savings account.” ~Anne Wilson Schaef
