It’s open enrollment season. Did you fund your HSA?

The Health Savings Account (HSA), not to be confused with a Flexible Savings Account (FSA), was created in 2003 by President Bush. The HSA allows you to pay for health care with pre-tax dollars.

The best thing about the HSA is you don’t lose any unspent money at the end of the year. Contrast this with the FSA has a “use it or lose it”.

The HSA is also neat because there’s no income limit on deducting the contributions, even if you make millions of dollars a year. Some HSA providers even let you invest the money in the stock market.

The HSA is triple taxed advantaged

The HSA is triple taxed advantaged. 1) You don’t pay tax on it upfront. 2) You don’t pay tax on it as it grows. 3) You don’t pay tax on it if you use it to pay for health care costs.

One neat thing about the HSA is if you leave the money in the account until retirement age (65), you don’t have to spend it on health care (as of 2021, who knows what the future will bring). This can effectively make it a stealth IRA.

The downside

Sound too good to be true? Well, the major downside is you must have a high deductible health plan for your insurance. In 2022, this means your deductible must be $1,400 for an individual or $2,800 for a family. The yearly out-of-pocket expense can’t be more than $7,500 (individual) or $14,100 (family).

There’s also a limit: $3,500 (individual) and $7,300 (family). Keep in mind this limit also includes any employer contribution.

So, did you fully fund your HSA during open enrollment?

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