Are you familiar with a Health Savings Account (HSA)? If you’re like most people, you’ve heard the term but you’re probably not sure what it is or if it makes sense for you.
If that’s the case, then it’s your lucky day because we’re going to dig into exactly what a Health Savings Account is and, most importantly, why I absolutely love them. So with that, let’s check out a few statistics that just might surprise you.
Did you know that 63% of Americans can’t even shell out $500 for emergency expenses?
A 2015 survey conducted by Bankrate reveals that only 37% out of the 1000 participants interviewed have the financial ability to pay for an unexpected expense. Stuff like having your car fixed, taking your dog to the vet, or even getting your refrigerator back up and running are typical problems that fall under this expenditure.
And, while the numbers have probably changed since then (for the better, let’s hope), it gives us a glimpse at the state of a lot of people’s financial capacities. And it’s not looking good, apparently.
Which leads me to my next few questions. What if there was a medical emergency? What’s the best way to make sure you’ll have the funds for medical expenses? And, what if there was an account that offered tax-deductible contributions, tax-free growth and tax-free withdrawals? In others words, the triple threat of tax savings.
Enter: the Health Savings Account.
What is a Health Savings Account?
Think of a Health Savings Account (HSA) as a health-expense focused-401k. However, instead of saving for retirement, the money you allocate to it can be used anytime, tax-free, for qualified medical or health-related expenses. Like a 401k, it also has an annual limit which for 2018 is $3,450 for individual and $6,900 for families.
Here are just a few of the incredible things about an HSA:
- Contributions are tax-deductible
- Earnings grow tax-free
- The money can be used to cover healthcare expenses now or in retirement on a tax-free basis
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