If you haven’t already, you’ll probably hear from your employer soon about your company’s open listing period. At that point you will choose your employer-sponsored benefit plans, which may include health, vision, teeth, disability and life insurance. Most companies do this in the fall so your selection can be effective in the new calendar year. Open enrollment is usually the only time you can change your benefits unless you have a qualified life event in your year.
Companies often update annual plans and premiums to keep up with industry trends and cost changes, so your coverage this year and your premiums may not be the same next year. As your situation changes, it is especially important to examine your options and choose the one that best suits your current needs.
Of course, with endless choice and confusing terminology, it’s tempting to repeat what you did last year. However these decisions can have a significant financial impact, so it is worth taking some time and carefully considering your options. And you may be missing out on a generally unnecessary option that could save you a significant amount of money in the long run: a health savings account (HSA).
What is HSA?
An HSA is a tax-sheltered savings account available to participants in high-deductible health plans (HDHPs) that can be used for eligible medical expenses. HDHPs offer higher discounts and out-of-pocket benefits than traditional health insurance plans. The rewards for taking on these high costs are lower premiums and the opportunity to save tax by contributing to an HSA.
To increase your savings, many employers will offer you a match or other contribution if you choose the HSA option. HSA contributions can be saved in cash, but they can also be invested in securities, such as stocks and bond funds, which can give your money the potential to grow.
Why use HSA?
After learning how HSAs work, it is easy to see why they are so attractive. “When it comes to taxes, I like to describe them as one Triple threat,Taylor Turner, a senior financial adviser at the Vanguard Personal Advisor Service, explains3.
- Contributions are tax-deductible.
- Investment increase tax-suspended.
- Eligible withdrawals are tax free.
These are powerful advantages over other taxable or taxable account options (See Figure 1).
Figure 1. Do it now, do it later, never do it
* Withdrawals must be used for eligible expenses.
Costs and limits for HSA: 2021 by number
Two critical numbers can help you determine which HDHP with HSA is right-cut for you and the most out of pocket. The federal government regulates these costs and contribution limits for the HSA. Figure 2 Shows minimum deductibles and maximum out-of-pocket costs for 2021. Figure 3 In 2021, participants demonstrated how much they can contribute to their account.
Figure 2. High-cut health plans must meet certain criteria
Figure 3. Maximum HSA contribution for 2021
HSAs provide flexibility
Unlike other healthcare accounts, such as flexible expense accounts (FSAs) and health reimbursement accounts (HRAs), HSA has no “use it or lose it” restrictions. They allow you to roll out all your savings year after year. If you leave your employer, you take your HSA with you. This is for you forever যার which means you can accumulate a long-term balance for future healthcare expenses.
Withdrawals must be used for eligible medical expenses such as doctor’s visits, surcharges and other expenses that can be deducted on the tax return, but the time of withdrawal is entirely up to you. You can withdraw one at any time in the future for any qualifying expenses since you opened the account.
For example, suppose you pay $ 2,000 out of pocket this year for your daughter’s brass. Instead of using your HSA fund now to cover those costs, you save the receipt and keep the money in your account. Then, in 10 years when it comes to paying for his college tuition, you can not only use that receipt to raise funds from your HSA-fund, but the value of your account has increased thanks to the power of compounding.
It is important to know that if you withdraw without eligible medical expenses, this amount is subject to income tax and if you are under 65 years of age, there will be a 20% penalty. But HSAs can also be used to buy Medicare premiums (excluding Medigap premiums) or long-term care insurance. With so much flexibility, the risk of taxes or fines is low.
Creating an HSA job for you
If you are relatively healthy and spend less on annual healthcare, consider an HDHP with HSA to reduce your insurance premiums and set aside those savings for future healthcare expenses. If you can, try to maximize your HSA contribution each year. Think of your HSA assets as your retirement account বিনিয়োগ invest it in the long run to maximize returns as much as possible and pay near-term costs out of pocket. Be sure to keep your receipts for future withdrawals.
Make the most of open enrollment
During open enrollment, take the time to consider your options instead of defaulting to what you selected last year. You can find the best plan for you by comparing premium, deductible, maximum out of pocket and tax costs. Don’t hesitate to ask for help from your company’s benefits department, or consult a financial advisor about your individual situation. If your expected healthcare costs are low and you want to maximize your tax savings, an HSA with an HDHP may be right for you.
Start investing in Vanguard Fund through a health savings account.
All investments are at risk, including the potential loss of money you invest.