Understanding your HSA and getting to financial independence

A health savings account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP). The funds contributed to an account are not subject to federal income tax at the time of deposit. Unlike a flexible spending account (FSA), HSA funds roll over and accumulate year to year if they are not spent.

HSAs are owned by the individual, which differentiates them from company-owned Health Reimbursement Arrangements (HRA) that are an alternate tax-deductible source of funds paired with either high-deductible health plans or standard health plans.

HSA funds may currently be used to pay for qualified medical expenses at any time without federal tax liability or penalty. Beginning in early 2011 over-the-counter medications cannot be paid with an HSA without a doctor’s prescription. Withdrawals for non-medical expenses are treated very similarly to those in an individual retirement account (IRA) in that they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier. The accounts are a component of consumer-driven health care.

Advantages of an HSA:

  • Roll over savings not used each year
  • Invest your health savings funds
  • Tax deduction


  • High deductible for medical care
  • Less coverage
  • Higher out of pocket costs

Health Savings can have incredible advantages. They can build up your net worth. You can earn passive income from these accounts. You can even save for a rainy day. There is no end to what you can accomplish with these accounts. But they are not for everyone.

People that go to the doctor more frequently may decide that a PPO plan with a lower deductible is more financially beneficial. If you have more chronic medical conditions that require you to go to the doctor you may be paying more out of pocket for each visit due to the high deductible nature of the medical plans. You may also consider adding a supplemental plan for prescription drugs. Evaluate your situation. Is it right for you and your spouse or family?

But even if you are paying more out of pocket it is still wise to have an HSA. You can put money in an HSA for the long term.

If you keep your receipts you can reimburse yourself later, even years later for your spending on health today. So you could invest money in your HSA account, let it grow in an investment, and then reimburse yourself later with the funds.

These accounts were created because healthcare is only getting more expensive. And has likely happened in the past is going to happen with these health accounts; they will become more popular with the general public and Congress will increase the amount of money you can put into the accounts. It is likely to keep up with inflation and maybe even increase based on consumer demand.

You have to take control of your financial situation. And health is one of the most expensive items you will spend in your life time besides you home. You must take advantage of all the tax advantaged accounts in order to maximize your gains.

You do not know how many years you are going to live. What if you live to be 90 or 100. Are you going to have enough money to take care of yourself and your family? Are you going to be able to leave some money to your heirs or to charity. Or maybe you are like and savings so you can start your own business.

Make smart choices. That’s how you are really going to build wealth over the long term.

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