• Home
  • GET THE BOOK
  • Start Here
  • Blog
  • Free Resources
  • Shop TBM
  • Courses

The Budget Mom

Real Women. Real Life. Real Finance

  • Home
  • Products
    • Live Rich Planner
    • Budget By Paycheck
  • Blog
  • FREE RESOURCES
  • COURSES
  • GET THE BOOK
  • Shop TBM

A life you love on a budget you can afford.

Here on TBM®, I provide you with simple, easy-to-follow solutions to help you budget your money, pay off debt, save more, and crush your financial goals. But more than that, I give you the tools to start doing the things that matter most to you, on a budget that actually works!

Everything You Need to Know About HSAs

September 23, 2021
FINANCE 101

Share
Pin51
Share
Tweet
Email
51 Shares

If you want to save for medical expenses and reduce your taxable income at the same time, opening a health savings account (HSA) is a great option. However, it may not be the best fit for you, depending on your situation and insurance policy. 

Let’s look more closely at how HSA’s work, and the pros and cons of opening one. 

Featured Post

Is a Health Savings Account Right for You?

Read Post

What is a Health Savings Account (HSA)?

An HSA is a savings account that you can only use to pay for qualified medical expenses. The money you deposit into an HSA isn’t taxed, and you control the funds, not your insurance company. 

If you’re enrolled in a High-Deductible Health Plan (HDHP), you’re eligible to open an HSA. An HDHP is an insurance policy with a higher than normal deductible. 

Your premium may be low, but you’ll have to pay a hefty deductible before your insurance company pays anything. According to the IRS, individuals with a deductible of $1,400 and families with a deductible of $2,800 qualify as an HDHP. 

If you’re a healthy individual with few medical expenses, an HDHP may be a good choice for you. HSAs can also be a good option for retirees to help offset some of the medical costs. 

What are the Tax Advantages?

Here are the three tax benefits you’ll receive for opening an HSA:

  • The money you contribute is not subject to federal income taxes
  • Any interest you earn from the HSA is not subject to federal income taxes
  • The money you withdraw is not subject to federal income taxes, assuming the purchase is for a qualified medical expense

Pros and Cons

Like anything, there are advantages and disadvantages to using an HSA. Let’s look at some of the biggest pros and cons below. 

Pros

  • More control: One of the biggest advantages of an HSA is that you have more control over your medical expenses. You own the account and can decide how the money is spent. And if you don’t spend it all by the end of the year, it automatically rolls over into the following year. 
  • Employer contributions: Your employer may contribute to your HSA as part of your employee benefits package.
  • No taxes: Any money you deposit into your HSA is tax-free. And if you earn interest on the money in your HSA, that’s tax-free as well. And if you use the funds for qualified medical expenses, your withdrawals are tax-free as well.
  • Convenient: The money you put in your HSA is easy to access and use. Most insurance companies will issue you a debit card so that you can pay for necessary expenses immediately. 
  • Investment opportunities: In addition, the money you put in your HSA can be invested in mutual funds or other investment vehicles. But if you plan to do this, you’ll need to find an HSA custodian to manage your investments. 

Cons

  • High deductible: To qualify for an HSA, you have to agree to an insurance plan with a high deductible. For a family of four, paying $2,800 or more out of pocket for a necessary medical procedure can feel very out of reach. 
  • Taxes: If you use the money in your HSA for non-qualified expenses, you’ll have to pay taxes on it. 
  • Possible fees: Some HSAs charge either a monthly maintenance fee or a per-transaction fee. This fee will likely offset any interest you earn with the account. You may be able to get the fee waived if you can maintain a minimum balance in your account. 
Featured Post

What to Do When You Have Debt and Can't Afford Medical Coverage

Read Post

Qualifying purchases

When you use the funds in your HSA, you want to make sure you only use them for qualified medical purchases. Otherwise, you’ll have to pay federal taxes on your withdrawal. 

However, the regulations that govern these accounts are updated frequently, so it’s hard to know what is considered a qualified expense. This list is not all-inclusive but can serve as a guide to help you get started. 

Here are some of the IRS-qualified expenses:

  • Ambulance
  • Birth control
  • Blood sugar test kits
  • Chiropractor
  • Dental treatments
  • Drug prescriptions
  • Flu shots
  • Physical therapy
  • Over-the-counter (OTC) drugs
  • Vision exams
  • Wheelchair

However, if an item is not listed as an IRS-qualified expense, you may be able to get it approved with a letter of medical necessity. For instance, weight loss programs, CPR programs, or special home equipment may be eligible with a letter of medical necessity. 

How Do I Get Started?

If you’re interested in opening an HSA, you can do it through your employer or a financial institution. However, there are a few things to keep in mind.

First, HSAs are only available to individuals under the age of 65. Once you’re enrolled in Medicare, you can’t continue making contributions to your HSA.

Also, the IRS puts limits on how much money you can contribute each year. Individuals can contribute up to $3,600 per year, and families can contribute up to $7,200 per year. If you’re between the ages of 55 and 65, you can make additional catch-up contributions of $1,000 per year. 

The Bottom Line

If you’re enrolled in an HDHP, you automatically qualify for an HSA. HSAs can be a great option, thanks to the tax benefits, and they can give you more control over your medical care.

Have you ever used an HSA? If so, what was your experience like? Let me know in the comments!

Share
Pin51
Share
Tweet
Email
51 Shares

Filed Under: Tagged With: HEALTH SAVINGS ACCOUNT, HSA, INVESTING, SAVINGS TIPS

Previous article:
« Is Gap Insurance Worth It?
Next article:
Retirement Planning: How to Start from the Beginning »

Hello, I'm Kumiko, but everyone just calls me Miko. Welcome to my blog, The Budget Mom. I am an Accredited Financial Counselor® , and mom to a rambunctious boy. Come along with me as I strive to live a life I love on a budget that I can afford. Read more about me.

RECENT YOUTUBE VIDEO

The Budget Mom

The Budget Mom
Back on March 1st, I did an Instagram Live all about closing out your budget.

This step and my "Where Did My Money Go?" Worksheets are the two things I get the MOST questions about.

What do you do with your budget after the month is over, and you’re ready to begin a new month? Most people don’t realize it, but your spending throughout the month gives you some incredibly helpful information.

One of the first steps to creating and sticking to a realistic budget is tracking your expenses. Your spending is the underlying foundation for creating a budget and ensuring that your budgets in the future are successful.

If you are not aware of where your money is going, you can’t make the best decisions for your dollars.

➡️ HOW I TRACK MY SPENDING: https://bit.ly/3aIe89I
➡️ HOW TO USE A BUDGET CALENDAR: https://bit.ly/2IzF2Vj
➡️ FINDING YOUR WHY: https://bit.ly/3aJUryj
➡️ THE BUDGET MOM'S FINANCIAL FREEDOM STEPS: https://bit.ly/3cfJXsp
➡️ HOW TO GET STARTED WITH THE CASH ENVELOPE METHOD: https://bit.ly/2vQJaO5
➡️ HOW TO CREATE A PLAN OF ATTACK TO PAY OFF DEBT: https://bit.ly/2wDETxF
➡️ HOW TO CLOSE OUT YOUR BUDGET: https://bit.ly/2Uz0UUW

ABOUT ME

Kumiko Love is a single mom who empowers women everywhere to regain control of their financial lives. An Accredited Financial Counselor with over nine years of experience in the finance industry, she founded The Budget Mom, a community of millions of women on a path to financial fulfillment.

She's also the creator of the wildly popular Live Rich Planner® and Budget by Paycheck® Workbook. Love has been featured on Good Morning America, the Today show, CNN, CBS, ABC and in USA Today, US News, World Report, Huffington Post, Money Magazine, Parents Magazine, the Washington Post, and Real Simple. She lives in Spokane Valley, Washington.

YOU CAN FIND ME AT:

📝 WEBSITE: https://www.thebudgetmom.com
📘 FACEBOOK: https://www.facebook.com/thebudgetmom/
📸 INSTAGRAM: https://www.instagram.com/thebudgetmom/
📌 PINTEREST: https://www.pinterest.com/thebudgetmom/

GET STARTED

➡️Start Here: https://www.thebudgetmom.com/start-here/
➡️Courses: https://courses.thebudgetmom.com/
➡️Free Resources: https://bit.ly/2PDmTHz
➡️GET 10% OFF my popular Budget-by-Paycheck Workbook - Coupon Code TBMYOUTUBE https://bit.ly/3FEdZFp
Load More... Subscribe
Free Resource Library

Recent Posts

  • What to Do When You Receive a Lump Sum of Money
  • Why You Should Consider a High Yield Savings Account for Your Emergency Fund
  • Common Investment Terms You Need to Know
  • Saving for the Unexpected: How to Protect Your Family with an Emergency Fund
  • Budgeting When You’re Behind on Bills: A Survival Guide

Blog Categories

Amazon Associates Disclosure

The Budget Mom, LLC is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.

  • Cart
  • Shop Policies

Start With My Friday Newsletter

Every Friday I send you a short helpful email with my popular Friday freebie. Join my 500k+ subscribers!

About

  • Home
  • ABOUT TBM
  • Contact
  • Start Here

Important

  • DISCLAIMER
  • PRIVACY POLICY
  • Subscribe

Favorites

  • YouTube
  • Blog
  • Live Rich Planner
  • Budget by Paycheck

Start With My Friday Newsletter

Copyright ©2023, The Budget Mom®
This website contains affiliate links, which means that if you click on a product link, I may receive a commission. This website is a participant in the amazon services llc associates program, an affiliate advertising program where I earn advertising fees by linking to amazon.com.
  • How financially fulfilled are you? Take this 2 minute quiz to get your score!
    Click Here to Start