Sometimes it takes a while for someone to know a good thing, even when it’s staring them in the face. Dorothy in The Wizard of Oz had to go all the way to the Emerald City and back to Kansas to realize there’s no place like home.
The same can be said for financial products. Health Savings Accounts have been around for more than a decade, but with all the buzz around them you’d think it was the latest and greatest. According to Devenir Research, HSA assets crossed the $30 billion threshold. The number of accounts rose to 16.7 million, a year over year increase of 25% for has assets and 22% for accounts for the period of December 31, 2014 to December 31, 2015.
There’s some new thinking about HSAs. "I’m noticing that financial planners and advisors are starting to talk up HSAs as part of retirement advice they are providing their clients," says Roy Ramthun, president and founder of HSA Consulting Services.
Greg Geisler, Ph.D., an associate professor of account at the University of Missouri-St. Louis, in an article for the Journal of Financial Planning, contends that a HSA could be better than an employer-matched 401k, primarily because the tax savings on many employees’ contributions to a HSA increases wealth by more than an employer match on the same employees’ 401k contributions. Now that’s something to think about.
If you’re not real clear about HSAs, it’s a tax-advantaged savings account designed to be used only in conjunction with a High Dollar Deductible Plan (HDHP) based on guidelines set by the IRS. There’s a three-prong plus when it comes to health savings accounts. You get a pre-tax or tax deduction contribution going into the account, tax-deferred growth on the earnings and income tax free when spent on HSA-eligible expenses. A HDHP paired with a health savings account can cost much less in monthly premiums compared to traditional health insurance. If you want to reap the benefits of an HSA on your 2015 taxes, you have until April 18, 2016 to open and fund your account.
If you’re thinking that you want to consider a HSA for the 2016 tax year, there’s good news. The annual contribution limit for singles is $3,350 and the family is $6,750. Participants age 55 or older can make $1,000 of additional catch-up contributions. To be eligible to open an HSA your health plan should have a minimum deductible of $1,300 for singles, $2,600 for families, and for out-of-pocket expenses, it’s $6,550 for individuals and $13,100 for families.
"For those who qualify, a health savings account is a great way to save for future medical expenses because contributions reduce your taxable income and distributions from an HSA used for qualified medical expenses are tax-free," says Benjamin Sullivan, a certified financial planner and portfolio manager with Palisades Hudson Financial group. "When used properly, a health savings account provides the owner with the best benefits of both a traditional IRA and a Roth IRA."
Editor's Note: To find an HSA with the best interest rate, please refer to our HSA rate table.