Is an HSA Right for Me?

A Health Savings Account (HSA) is a form of health insurance that combines a high-deductible major medical plan with a savings account similar to an IRA. The high deductible helps keep premiums low while the savings element allows you to accumulate funds that can be used toward medical expenses while also building a retirement nest egg over time. A number of factors will determine if an HSA is right for you.

Meeting the Deductible

• Because of the high HSA deductible, you may have to pay a large amount of money out of your own pocket toward medical expenses. If you don't have money set aside or don't make regular contributions to the savings component of the plan, your HSA may be of little real value to you. On the other hand, if you're a disciplined saver, you'll be able to enjoy the benefit of the lower premiums while ensuring you can cover out-of-pocket expenses.

Tax Considerations

• If you're concerned about saving on taxes, an HSA offers a number of tax benefits. If your HSA is employer-based, you can make contributions on a pretax basis which lowers your taxable income. If you picked up your HSA on the individual market, you can deduct contributions on your tax return. Any withdrawals you make from the savings account are tax-free as long as the money is used for covered medical expenses. The savings account also earns interest on a tax-deferred basis.

Age Considerations

• If you start an HSA when you are older and have some health problems, an HSA may not be a good choice. Because you don't have the time that a younger person has to build a savings account, you may have difficulty accumulating funds. You may also have to make frequent withdrawals to cover health care costs, further hindering your ability to grow savings. However, any funds you are able to accumulate can be used to supplement a retirement plan, keeping in mind that you will no longer need the HSA when you enroll in Medicare at age 65.

Separating Finances

• Some people may not like the idea of having their health insurance tied to a savings plan, preferring to keep the two separate. If you would simply like to pay your health insurance premium when it is due and not have to worry about managing a separate account, an HSA is probably not right for you. On the other hand, if you enjoy having more control over your health care costs, an HSA provides that opportunity.