Should I Have an HSA? Here’s What a Financial Planner Recommends

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Medical emergencies could happen anytime. Even if you’re a high-net-worth individual (HNWI), the substantial bills arising from such situations can disrupt your financial plans. 

If you’re wondering, “Should I have an HSA,” and looking for a smart way to manage medical costs while making the most of tax advantages, a Health Savings Account (HSA) may be worth considering.

But is it the right choice for your financial strategy? 

This guide explores how an HSA works, what financial planners recommend, and whether it fits into your overall goals.

What is an HSA and Who Qualifies for It?

A Health Savings Account (HSA) is a personal savings account you can withdraw from when paying for deductibles, copayments, prescriptions, and other qualified medical expenses. It offers tax advantages by allowing you to save, grow, and withdraw money tax-free that you can then use for healthcare costs not covered by your insurance.

You are eligible for an HSA if you have a High Deductible Health Plan (HDHP), which generally covers preventive care while requiring you to pay deductibles or out-of-pocket costs. If you have a Medicare plan or other first-dollar coverage benefits, you are not HSA-eligible.

For 2024, HSA self and family coverage contribution limits are $4,150 and $8,300, respectively. You may avail yourself of a $1,000 catch-up option if you’re 55 or older. 

Unused funds roll over annually, making HSAs a flexible and effective tool for managing healthcare costs or saving for the future.

What Are the Benefits of an HSA? 

HSAs provide several key benefits for healthcare management while optimizing your finances. The tax benefits that HSAs offer make them ideal for saving on medical expenses, growing your savings over time, and potentially reducing your overall tax burden. Here’s a look at the top HSA advantages:

Tax-deductible contributions

Putting money into your HSA lowers your taxable income for the year. This means you pay less in taxes. For example, if you contribute $3,000, your taxable income goes down by that amount, which can result in a lower tax bill.

Tax-free growth

The funds in your HSA grow tax-free. So, whether it earns interest or you invest it, you don’t have to pay taxes on the return, so your savings can grow faster over time.

Tax-free withdrawals

You can withdraw money from HSAs tax-free for qualified medical expenses. As such, you don’t have to worry about taxes taking a portion of the money you use for healthcare costs.

Potential Downsides and Considerations of an HSA

While HSAs have significant benefits, certain factors can impact your savings. 

Penalties for non-qualified expenses

If you use HSA funds for anything other than qualified medical expenses, you’ll face a 20% penalty, or 10% if you’re 65 or older, along with the regular income tax on the withdrawal. This makes it essential to use HSA funds only for eligible expenses.

Potential fees

Some HSA providers charge maintenance, investment, or transaction fees that can deplete some of your savings. Always check your chosen provider’s fee structure before committing.

Medicare and HSA compatibility

Once you enroll in Medicare, you can no longer contribute to your HSA. While you can still use the funds for qualified medical expenses, not being able to grow your HSA account can limit how much you save as you near retirement.

How an HSA Fits Into Your Broader Financial Plan

While many focus on retirement accounts like 401(k)s or IRAs, an HSA offers additional benefits that help you and fellow HNWIs attain your financial goals, especially those concerning healthcare planning and long-term wealth preservation.

1. Funds future healthcare expenses

While many HNWIs have access to top-tier medical care, the rising costs of healthcare pose concerns for everyone. With an HSA, you can set up funds specifically for medical expenses. Since HSAs mean tax-free growth and withdrawals for qualified medical expenses, part of your financial portfolio is safe from expensive healthcare costs.

2. Strengthens your retirement portfolio

As part of retirement planning, an HSA offers tax advantages that other retirement accounts don’t. For one, you can invest HSA funds to grow them substantially over time.

Meanwhile, HSAs’ triple tax benefits—tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses—promote flexibility in accumulating wealth as you approach retirement.

3. Covers unexpected medical costs

While proactive planning is essential, life is unpredictable and medical expenses can arise unexpectedly. However, an HSA can cover urgent medical expenses without dipping into your emergency fund or liquidating other investments.

4. Secures your legacy

An HSA can contribute to legacy planning as it lets you designate your spouse as the beneficiary. In this case, the account retains its tax-advantaged status and is eligible for your spouse’s healthcare expenses in the future. While HSAs are primarily for medical needs, they can also support your family financially.

Invest in Your Health, Secure Your Wealth

At the end of the day, your financial strategy is only as strong as the tools you use to build it. 

An HSA can safeguard your healthcare needs and strengthen your retirement plans. You can use it to invest for long-term growth, cover unexpected medical bills, or secure your legacy. Ultimately, an HSA can help you build wealth. You only need to consult a Certified Financial Advisor® in Utah for guidance in integrating an HSA into your overall goals. 

Wondering why working with a financial planner is worth it? Check out 7 Reasons Why Our Advisory Services Are Worth The Fee and see how Tencap Wealth Coaching can create a strategy tailored to your unique goals. Let’s make your financial dreams a reality!

Disclaimer: The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Utah or where otherwise legally permitted. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Purchases are subject to suitability. This requires a review of an investor’s objective, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital.

Nick Carrigan Standing
Nick Carrigan
Wealth Advisor |  + posts

Nick trains and develops families in creating, maintaining, and growing wealth. This includes educating clients on the science and academics of investing, comprehensive financial planning, and ongoing coaching to ensure discipline for a lifetime. Nick has seen this create incredible levels of freedom, fulfillment, and love for the families he works with.

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