Three Reasons Millennials Should Care About HSAs
Let’s face it – there are a lot of things competing for your cash these days. Student loans, a house down payment, home repairs and improvements, building that emergency fund, giving to organizations you care about. Or, dare I say, taking a fun trip or dinner out with friends?
I get it. I’m a millennial myself. But I’d like you to consider adding a health savings account (HSA) to that growing list.
If you don’t understand HSAs, you’re not alone. They’re complex, but finally gaining momentum after being a best kept secret since they were signed into law in 2003. They’re easy to get confused with the flexible spending account (FSA), which is a spending account offered with more traditional medical plans (like an HMO). If you have an FSA, you might remember trying to carefully predict how much money you may use on medical expenses in a certain year to ensure you don’t lose money at the end of the year. That’s because FSAs are meant to be spent and have a use-it-or-lose-it rule, with the exception of a $500 rollover amount added by the IRS in 2013.
In contrast, HSAs roll over from year to year and are yours to keep if you leave your employer. That means if you have a light year of medical expenses (woo hoo!), your money will still be there years later if/when your spouse needs surgery, you have a baby, or just want to use it for annual doctor visits. One important thing to note about the HSA, is that you can only have it if you have a high deductible health plan (HDHP). This is intimidating to some folks because it means you won’t pay a standard $50 or $25 co-pay at the doctor’s office, but a discounted rate of the medical cost, which is less predictable. But keep in mind that high deductible health plans also have a lower premium than more traditional medical plans (the amount that comes out of your paycheck for medical insurance each month). So you could potentially put the money you save each month in your HSA to save for when you need it. Plus, many employers are also now contributing money to their employees’ HSAs, which can help to grow your HSA nest egg.
But why should you care?
It can double as a retirement vehicle. Instead of thinking of the HSA as another savings account, think of it as a medical 401(k) or 403(b). If you’re able to pay up front for medical expenses, you can invest the money in your HSA, just as you would the money in your retirement account. This is the best way to grow your HSA dollars. Just make sure to save your medical receipts, so you can reimburse yourself down the road, if you should want or need to.
You have time. One of our biggest advantages of being young (besides our good looks and agile bodies) is that we have time, and this applies whether you choose to invest your HSA money or not. If you do invest, that means your money has more time to earn interest and grow. If you aren’t able to pay medical expenses up front right now, and therefore opt for the HSA debit card, time is still on your side. Ideally, you and/or your employer are putting money in your HSA each paycheck. So if you have an unexpected $800 medical expense, but only $500 in your HSA, you can use up your $500 and pay $300 out-of-pocket, then reimburse yourself the $300 over time once your HSA builds those funds back up.
You can reimburse yourself any time. This is one of my personal favorite features of the HSA. You can reimburse yourself any time. In a week, in a year, or thirty years from now. Just save the receipts for your eligible medical expenses and you can withdraw your money tax-free, and spend your money however you like.
For more information about health savings accounts, visit HSA-xChange.com or call us at (888) 858-2739.