Thursday, January 25, 2018

Health Savings Account

When I turned 26 in November of 2016, I had to get off of my parents health insurance. I had little to no information on which insurance I should choose. My employer offered three CareFirst choices:

1. A premium plan (Most expensive)
2. HMO Option
3. HSA Option (Least expensive)

Now, I didn't know much of the difference between each of these plans so I started doing some research. I knew I didn't want to pay for the premium plan, because I consider myself young and healthy (I workout 5-6 days a week and make healthy eating choices)

So my decision came between the HMO Option and the HSA Option. The difference in price was nominal so I had to do some research. 

When I started reading about the HSA option my eyes lit up. 

By definition, an HSA is:

"A type of savings account that lets you set aside 
money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in a Health Savings Account (HSA) to pay for deductibles, copayments, coinsurance, and some other expenses, you can lower your overall health care costs.

An HSA can be used only if you have a High Deductible Health Plan (HDHP) — generally any health plan (including a Marketplace plan) with a deductible of at least $1,350 for an individual or $2,700 for a family."

An HSA is triple tax advantaged. 
1. The contributions are tax deductible. You can contribute $3,400 a year if you are an individual and $6,750 if you are a family.
2. The interest earned is tax-free.
3. You can withdraw the money for qualified medical expenses tax free
4. After age 65, you can use your HSA much like a 401(k) and withdraw funds for any purpose.

These are incredible reasons to why you should consider an HSA. 

The only con to an HSA is that you must have a high deductible health plan. This means you will pay more out of pocket if you frequently visit the doctor. If you think you will be visiting the doctor fairly often then I would weigh your options carefully. 

Now you may be asking how does this relate to dividends? Well my HSA allows me to invest my HSA funds. These means I can invest tax deductible income into investment vehicles that will pay dividends tax free. If I need to withdraw those dividends I pay no tax. This is an incredible tax advantaged savings account. 

I have yet to start investing in my HSA, but I will soon. Once I get a snowball rolling in my HSA I will be able to use dividends and interest to pay for my medical expenses. This could lead to me never having to pay for doctor visits or exams. Since health care in the U.S. can be expensive this is a great tool.

I will update everyone once I make my first HSA investment and let you know about the dividends as well.

Let me know what you guys think! What health plans do you guys have?

Image courtesy of everydayplus at 

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