Why You Should Consider Using an HSA as Part of Your Journey to Financial Independence

HSA stands for Health Savings Account, but really in my opinion, HSA should stand for Health Savings Awesomeness! These accounts are so great for many reasons, and I’m just a little bit excited to share with you why they are the best! 

Let’s start by reviewing what an HSA actually is. An HSA is a savings account that allows the owner to pay for qualifying medical expenses in a tax-advantaged way. Here are some HSA facts, and I hope you’ll see why I think an HSA is beneficial to use as a physician assistant on your journey to financial independence.

HSAs Are the Only Triple Tax Advantaged Accounts out There!

What are the 3 ways that HSAs are tax advantaged? 

1. The contributions that you make to an HSA every year are tax-deductible a.k.a. pre-tax contributions. This means that contributing to an HSA helps to lower your taxable income by that amount for that year. Any way that you can pay less in taxes is a huge win!
2. The earned interest in your HSA account is also tax-free, meaning that if you leave the HSA money in your account to grow, the growth also will not be taxed. 
3. Finally, any amount of money that you withdraw from an HSA account – as long as it is used for a qualified medical expense – is also tax-free! 

HSA Accounts Are Only Available If You Have a Qualifying High-Deductible Healthcare Plan (HDHP).

If you have many medical problems and / or use many medications, it is possible that an high-deductible healthcare plan with an HSA account may not be the best choice for you. 

HSAs Have Contribution Limits.

For the year 2022, the maximum contribution limit for individual coverage is $3650, and $7300 for family coverage, with a catch up contribution limit of an extra $1000 for those age 55 years and older. 

Many Types of Expenses Qualify to Be Covered by HSA Dollars.

So what are some examples of qualifying medical expenses that you use your HSA dollars to pay for? Here’s a non-comprehensive list to get you started: medical bills, prescription medications, dental bills, physical therapy, speech therapy, acupuncture, chiropractic care, ambulance rides, breast pump and other lactation supplies, eye exam, contacts, eyeglasses, artificial limbs, hearing aids, mental health therapy with a psychologist, wheelchairs, etc. Additionally, with the CARES Act that was initiated in early 2020 as a response to the COVID-19 pandemic, the list of qualifying expenses has increased to include certain over-the-counter medications and menstrual products. 

Here’s an amazing tip as well: Amazon actually has a section where you can specifically shop for HSA (and FSA) qualifying items! How great is that!? Some common items found on there including the following: thermometers, heating pads, first aid kits, adhesive bandages, blood pressure cuffs, pulse oximeters, TENS units, tampons, menstrual pads, allergy medications, over-the-counter pain medications, over-the-counter acne medications, sunscreen, and for all the parents out there – nighttime diapers for your kiddos!! (Regular diapers do not count as a qualifying expense, but nighttime diapers do – how cool is that?) As you can see, the list of qualifying HSA expenses is quite extensive! 

Often, Your HSA Dollars Can Be Invested, Allowing You to Earn Even More Tax-Free Money!

Now this unfortunately is not the case for every single HSA out there, but most of the time, you can actually invest some or most of your HSA money that is sitting in your account. For example, my HSA allows me to invest all but $1000 in my account. However, investing in an HSA account is unfortunately not always available. For example, although my husband currently has a government job working for the city that we currently live in, for some silly reason, their HSA does NOT allow him to invest his money in his account, so it is earning only a minuscule amount in interest. So lame. However, you can actually change your HSA provider if you are not satisfied with the company that your workplace uses. 

The Best Way to Maximize the Benefits of an HSA Is to Actually NOT (Quite yet) Use It to Pay Back Medical Expenses…

You may be asking yourself, “Wait, I thought you just told me to use my HSA to pay myself back for all those qualifying medical expenses in that expansive list found in #4?” You’re not delusional, that’s what I said. However, IF YOU CAN, try to DELAY paying yourself back from your HSA account. 

How and why should you do this? Well, if you are able to afford a medical expense, such as a bill from a medical office visit, pay for it from your regular bank account by either using cash, debit card, or a credit card that you quickly and fully pay off. Better yet, use a rewards travel credit card to earn yourself points to redeem on travel, then pay off the card on time and in full. You need to keep track of your detailed receipt for your records showing that you paid for a qualifying medical expense.You would then LEAVE your HSA money in the account to allow it to remain invested, earning yourself even more money! There is no time limit from when you paid for a qualifying medical expense and when you can get reimbursed from your HSA! This means that you can reimburse yourself many years down the road after your HSA has accrued more money since it was invested all those years. How cool is this feature? This blew my mind when I first learned about it. 

You can even submit for reimbursement in future years if you no longer have a high deductible health plan, which would mean that you can no longer contribute to an HSA, since your HSA funds are yours to keep in the future. Some in the FI community choose to view their HSA either as a super savings account, or even a way to access some money when they retire early, since you would not have to pay a penalty to withdraw from your HSA the amount that you have already paid in medical expenses. 

Some people get concerned about receipts fading over the years of storage, or that the physical receipts may get wrecked as in the case of flooding or fire. It is advised that you store a backup (or two) of the receipt such as a digital copy as a pic on your phone, and/or a pic uploaded to the cloud. 

After the Age of 65, You Can Withdraw Money from the HSA for Any Reason.

Once you’ve turned 65 years old, you can withdraw your money from your HSA for any reason, whether medical or not. However, if you do withdraw from your HSA funds that are not used for medical expenses, you would need to pay income tax on those funds. This makes an HSA at age 65 comparable to a traditional IRA at age 59½. 

HSAs Are Different Than FSAs. 

Health Savings Accounts (HSAs) are completely different than Flexible Spending Accounts (FSAs). Both of these accounts are used to pay for qualifying healthcare related expenses with pre-tax dollars; however, FSAs are filled with money that you set aside for the year, and if you don’t use it, you lose it. 

I hope you can see why I think that HSAs are pretty great, and why I hope that you consider having one for yourself since there are so many benefits to having an HSA.