A health savings account — or HSA — is a savings account that allows you to set aside pre-taxed money for certain medical expenses. Since this money is not taxed, it may keep healthcare costs down by paying for deductibles, copays and other expenses.
- What Is a Health Savings Account?
- Which Banks Offer the Best HSAs?
- What To Consider When Choosing an HSA
It is important to know how a health savings account works. You may use an HSA on any qualified medical expense, but only those with a high-deductible health plan — also known as an HDHP — can contribute to an HSA. High-deductible health plans only cover preventive services before the deductible. For 2020, the minimum deductible for an HDHP is $1,400 for an individual and $2,800 for family coverage.
If you have an HDHP, you can contribute up to $3,550 for yourself or up to $7,100 for your family in 2020. A huge benefit to having an HSA is that these funds typically roll over from year to year, which means they won’t expire come December.
HSAs can be used as a spending account or an investing account. Using your HSA as a spending account allows you to cover qualified medical expenses as soon as they occur. If you use your HSA as an investment account, you can save for future medical expenses. Because your health savings account is tax-free, there are many benefits to save there, especially when thinking about retirement. When you grow your account in the long-term, you may be able to cover all healthcare costs when you get to retirement age.
Below are five banks and providers to show you the benefits of a health savings account:
|HSA Spending Account|
|Provider||Minimum Balance||Features||Interest Rates|
|Bank of America||$1,000 to invest|
|Fifth Third Bank||$0|
|The HSA Authority (Old National Bank)||$0|
Fidelity does not charge any monthly maintenance fees and doesn’t have any additional fees, which may make it a great choice for an HSA. It’s important to note that Bank of America requires $1,000 in a checking account before you can invest, which may be a bit steep compared to its competitors.
Related: Why You Need an HSA
You are given an HSA provider through your employer, but you are more than welcome to choose your own provider as well.
Only those enrolled in a high-deductible health plan can benefit from this. If you are enrolled in Medicare, are claimed as a dependent on someone else’s tax return or covered by a non-HDHP plan, you do not qualify for an HSA.
There are quite a few things to consider when picking a health savings account that works best for you. It really depends on how you plan on using the account — do you need it immediately, or do you plan on saving for the future?
The best benefit of an HSA is that it’s tax-free, including any earnings or investments you make. The funds within your HSA also roll over from year to year, so you don’t lose money.
With an employer-sponsored HSA, your company will be able to make contributions, as well as allocate money from your paycheck into the account. You can also open an HSA through your bank or financial institution. That way, you can manage your checking account, savings account and health savings account all in one place.
Learn: HSA vs. FSA: How To Choose the Best Healthcare Account
HSAs work similarly to savings accounts in that it is possible to earn interest. However, as you can see from the comparison table above, these interest rates aren’t incredibly high. The earnings on interest are also tax-free, which offers a small cushion for this type of account.
However, many HSAs have monthly fees associated with opening an account, maintenance or transaction charges. Based on your account activity, you can also pay fees for overdrafts or insufficient funds. It’s important to look at all of the details before deciding on an HSA that works best for you.
Remember, there are contribution limits for a health savings account. For 2020, that limit is $3,550 for an individual and $7,100 for a family.
There are three ways to contribute to an HSA. One is a payroll deduction through your employer, which comes straight from your paycheck. The second way would be to electronically transfer funds directly from your checking or savings account. You can also mail a check; however, this involves downloading an HSA contribution form.
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