The number of health savings accounts held by Americans continued its quiet climb last year.
It exceeded 28 million at the end of 2019 — an increase of 13% from the end of 2018, according to an analysis by the Devenir Group, a firm that serves the HSA investment industry.
This is just one of several HSA statistics that are trending upward, though. Devenir also reports that account holders contributed more than $38 billion to their HSAs in 2019, a 14% increase compared with 2018.
What is a health savings account?
An HSA is a type of tax-advantaged account designed to hold money for medical expenses. Despite its name, it can be either a savings account or an investment account, assuming you use an HSA custodian — such as Money Talks News partner Lively — that enables you to invest your contributions.
As is the case for other tax-advantaged accounts, you can deposit only a certain amount of money in an HSA each year.
You can deposit pretax earnings in an HSA, meaning you get a tax deduction for contributions in the tax year for which you make them. Additionally, your deposits grow tax-free, and you can withdraw money tax-free, provided that you use it for qualifying medical expenses.
In other words, it’s possible to never pay taxes on money that goes through an HSA.
Not everyone is eligible for an HSA, however. They were created for folks with high-deductible health insurance plans. For the 2020 tax year, the IRS defines such plans as having annual deductibles of at least:
- $1,400 for self-only coverage
- $2,780 for family coverage
HSAs as retirement accounts
As we note in “3 Great Reasons to Set Up a Health Savings Account,” any money you put in an HSA — and any interest or investment gains that money earns — remains in the account year after year if you don’t spend it.
This is one of the advantages an HSA has over a health flexible spending account, or FSA. And it means you can use an HSA like an extra retirement account — a tax-free one if you spend the money on qualified medical expenses. All you have to do is contribute to an HSA during your working years and not touch it until your golden years.
That’s easier said than done, of course. But even if you need to withdraw funds from your HSA annually, if you have a high-deductible insurance plan, it’s likely worth it for you to become the next person to take advantage of this tool.
Even if you don’t allow your HSA contributions to sit and grow, you will still save money by paying for medical expenses with tax-free dollars from the HSA. And that just might enable you to contribute a little more money to your actual retirement account.
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