Why HSAs

No matter how old you are, medical expenses are unpleasant and often exorbitantly high. As we get older and the need for healthcare increases, so too do healthcare costs. So if you are among the growing number of people with a high-deductible health insurance plan (HDHP), you’ll want to give serious consideration to a health savings account (HSA) that will allow you to save for medical costs on a tax-free basis.

If you’re not familiar with HSAs, they are basically the equivalent of an Individual Retirement Account (IRA), but for healthcare costs, and they are only available to individuals with HDHPs. Unlike IRAs, however, not only can pre-tax money be used to fund HSAs, but the contributions you make are also tax deductible and can be invested in investment vehicles such as stocks and mutual funds. Unlike flexible spending accounts, where the money you contribute each year is lost if not used for healthcare costs within the year it is contributed, the money invested in HSAs remains yours and can continue to grow on a tax-free basis indefinitely, for use on eligible expenses any time.

Not surprisingly, the tax-shielding benefits of HSAs make them increasingly popular, as they essentially act as a tax shelter, allowing individuals to decrease their annual income by whatever amount they have contributed to their HSA.  There are limitations. For 2018, the maximum that an individual can contribute to an HSA is $3,450, with the contribution limit rising to $6,900 for couples with high deductible family coverage. As with IRAs and 401k plans, there is also a catch-up allowance which enables those 55 years or older to contribute an additional $1,000 (or an additional $2,000 for married couples who are both 55 years old or older). To be eligible for an HSA an individual’s HDHP must have a deductible of at least $1,350 for an individual or $2,700 for a family plan, with maximum out-of-pocket liability of $6,650 for individuals, or $13,300 for family plans.

For anyone with an HDHP (just shy of 40% in 2016, according to the Centers for Disease Control’s National Center for Health Statistics), an HSA plan is an attractive way to save for medical expenses,  particularly since there is no risk of losing the money put into them if it is not spent within the year it is contributed. Money withdrawn from an HSA that is spent on anything other than medical costs does incur a 20% fee, but this poses little risk, given that the average person will face no shortage of medical costs within their lifetime. Fidelity Investments estimates that the average couple will spend more than $260,000 in medical costs when they retire, and that number just continues to rise.

Visit alpinebank.com to learn more about Health Saving Accounts available at Alpine Bank.

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