We all have to make the hard choice of finding the right insurance plan that works for us. A Health Savings Account is an option that is often overlooked. Many positive things could benefit you in the long run if you choose one. There are also like with all plans a few negative aspects. Here are some pros and cons to think about before speaking to a professional on what will be best for your situation.
Pre-tax
All the money that you put into a health savings account is taken out pre-tax. This will pay off when its time to file taxes. Any money that you added to your health savings account will reduce your yearly taxable income. If you made $60,000 this year and were able to put $7,000 in your health savings account, your taxable income is now $53,000 what a benefit to get while you are saving for your health. It will do a lot more for you in a health savings account than a regular savings account.
High Deductible
When signing up for a Health Savings Account plan, you are going to be paying a higher deductible. You will be expected to pay more at the doctors throughout the year until you reach your deductible. It may seem a lot at the time, but if you spend less than you would for another insurance plan, you are saving money. Once you have saved enough in your Health Savings Account, it won’t be much of a burden.
Extra Retirement
Retirement is something that we all worry about. A Health Savings Account is another way to increase your retirement. If you are lucky and end up not having to use your money for health reasons, it can grow to a substantial amount. While sitting there, it will accumulate interest. There are penalties if you try to take it out for any use other than medical until you are 65 years old. At that point, you can cash it out and use it however you would like.
Limits
Unlike a typical savings account, there is a limit to how much money you can contribute each year. As of 2020, an individual can put in $3,550, and a family can put in up to $7,100. Once you hit 55 years old, you can contribute an extra $1,000 on top of those numbers if you want to. There are penalties if you use the fund for anything that is not medical. Another thing to check into is maintenance fees associated with a Health Savings Account. Not every provider is the same; it is worth shopping around to get the best deal and protections.
Every person has different worries and is in a different place in their financial journey. There are many positives to using a Health Savings Account that can benefit you in the short term, but more benefits show up in the long run.