Health Savings Account – A Good Way To Invest Your Money
Looks like my medical group will start offering a HSA option. They were offering a FSA up until now but it wasn’t very popular. With the ‘Cadillac plans’ that we doctors get here of course the medical group wants to cut costs and so they are offering an HSA. In return, we have to switch from our current plan to a high deductible plan. Let’s get into this a little, it’s a fun little discussion.
I’m not a financial adviser or expert so if you are looking for IRS codes and really technical stuff you are better off either visiting the IRS website or checking out The White Coat Investors website where Dr. Dahle discusses such topics with impeccable accuracy.
Most of us docs have really good medical coverage. If you are the unhealthy sort or participate in risky activities and sports then it’s probably a good idea to stick with such a plan. They are referred to as Cadillac health plans. These plans have very low out-of-pocket expenses for the covered person(s) but are costly for the employer.
So, the employer (like in my case) offers their employers 2 options in order to save money. We can either stay with our high deductible plan and continue paying $30 a month in order to have this luxury. Or we can switch to this new HSA option.
A HSA, health savings account, allows you to put money away from your income that is not taxed up to a certain limit based on whether you are single or married. Your employer has to offer a high deductible health plan in order for you to be able to contribute to a HSA.
My company will pay up to $1,000 on my behalf and so I can contribute up to $2,350 for an IRS determined total of $3,350. This money is mine to take with me wherever I go. I can invest this money in various mutual funds and other investment vehicles. The money will grow without being taxed and I can either spend out of the account for appropriate medical services OR I can pay for medical expenses out-of-pocket and save receipts and reimburse myself later without owing taxes.
So, really the best part of this HSA thing is that you can let your money grow tax-free and take it out tax-free. That’s fantastic. If you take the money out before age 65 you have a 20% penalty unless of course it’s a medical related expense. After age 65 the 20% penalty is waved. But if you take the money out for anything other than medical expense you still would owe income tax on this. If you kept track of what you spent out of your own pocket (not the HSA) over the years then you can withdraw that equivalent amount at any age with no tax whatsoever.
- you don’t pay tax on the contribution, the growth nor the withdrawal
- it’s yours to take wherever you go in the future
- there is no RMD (required minimum distribution) unlike an IRA
- as long as you have a high deductible health plan you qualify for it and there is no income limit on this