Pros and Cons of an HSA Plan
It’s never a bad idea to plan for a rainy day. By investing in an HSA, you set aside valuable medical funds for the future, and potentially see more benefits as your savings grow. But an HSA plan has its drawbacks as well. Is an HSA right for you?
What is an HSA?
An HSA (health savings account) is an account dedicated to medical expenses. These accounts offer long-term savings options that compound over time.
How Does an HSA Work?
The savings you contribute to your account each month can be put towards a variety of expenses, such as co-pay, dental and orthodontic work, and even health care-related travel. Not everything is eligible, however — such as funeral costs, toiletries, and elective cosmetic work.
Here are some pros and cons to consider before setting up an account:
Pro — Tax Benefits
When you contribute to your HSA, you either pay with before- or after-tax dollars. Before-tax dollars will be taken from your paycheck, and will not be subject to federal income taxes.
After-tax dollars will be deducted from your gross income, reducing the amount of taxes you owe. In both cases, withdrawals are also tax-free, so long as they’re used for approved expenses.
Pro — Annual Rollover
Unlike an FSA, any leftover funds in your HSA will roll over to the following year, so there’s no time limit to using your savings.
Pro — Portability
An HSA isn’t tied to your current employer or health insurance, so your savings will follow you.
Con — High-Deductible Plans Only
You can only qualify for an HSA if you have a High-Deductible Health Plan. These plans can put more financial pressure on you, especially if you require frequent procedures and doctor’s visits.
Con — Penalties
Withdrawing funds for non-qualified fees will result in a 20% penalty; those withdrawn fees will also be taxed.
An HSA plan can benefit you for many years, and even put some money back into your pocket. But it isn’t a perfect plan. Connect with a qualified insurance representative to see what your options are, and what an HSA plan could do for you at Optimized Health Plans.