Is a Health Savings Account Right for You?

You’ve heard how beneficial a health savings account (HSA) can be in paying for your health care–related costs. But how do you know if opening one is the right choice for you?

As when you’re looking at many different types of financial and insurance products out there, you likely have some questions before you’re ready to get started. And we’re here to help answer them!

Here are the three questions you should be asking yourself if you’re thinking about opening your own HSA.

1. Do you qualify for an HSA?

First of all, the Internal Revenue Service sets a few requirements for HSAs. That includes a stipulation on which health insurance plans qualify and a limit on how much you can contribute.

Because HSAs can only be used in conjunction with high-deductible health plans, those enrolled in other types of health insurance plans are not eligible to contribute to an HSA. How do you define a high-deductible plan? The IRS says it must have a minimum deductible of at least $1,400 for individuals (or a minimum deductible of at least $2,800 for family plans)—and an annual maximum for out-of-pocket expenses of no more than $7,050 for individuals (or $14,100 for family plans).

If that sounds like your health insurance coverage, you’re likely eligible to contribute to (and benefit from) an HSA!

2. Do you have a lot of health care–related expenses?

Second, ask yourself how much you typically spend on your health care from month to month or year to year. If you have chronic health conditions or ongoing health needs, choosing an HSA can be a great way to reduce your costs by taking advantage of those tax-free funds.

It can also help you make a habit out of setting aside money in advance, just for that purpose, rather than trying to play catch up with your regular household budget.

If you’re thinking, “Well, I really don’t find myself at the doctor’s office very often,” or, “I don’t really spend that much on my health,” you still might find that an HSA is the right choice for you. After all, “health care” isn’t strictly limited to copays and prescriptions.

You can use your HSA to pay for first aid kits, dental care, cold and flu medicines, menstrual products, contact lens care, and even sunscreen. Another popular use of HSA funds these days? Personal protective equipment (PPE), including masks, alcohol wipes, and at-home COVID-19 tests is another eligible expense.

3. Do you want to prepare for your future health cost needs?

Regardless of your current health care budget and needs, there’s always the future to think about. Because your HSA is yours to keep—unlike flex spending accounts, for instance, which are tied to your employer—you can save money in your HSA to help offset future health care costs.

Plus, the money in your HSA account earns interest, and that interest is tax-free. That means your HSA contributions are likely earning more money than if you’d just kept those funds in your regular checking account.

Maybe you’re not dealing with any chronic issues today, but there’s a history of diabetes or breast cancer in your family. Having money to fall back on later in life can end up being hugely beneficial. We don’t know, after all, where we’ll end up, either one year or twenty years from now. And if you still haven’t dipped into your HSA by the time you’re 65? Those funds can be used like retirement savings without paying extra penalties. Investing in that future by opening an HSA could be the way to go.

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By D. Sponer