The truth behind health savings accounts.

Myth 1:  You don’t need it.

Truth: Yes, you do.

There are some pretty tough (but true) numbers coming your way: 81 and 76. According to the Centers for Disease Control and Prevention, these are average life expectancies for women and men, respectively, in America. These numbers are important because if you retire at 65, the average retirement age, you could be looking at anywhere from 15 to 30 years of healthcare expenses.

Now let’s talk money. A couple retiring in 2016 will need $260,000 to cover their medical costs assuming they live to the average life expectancy. This doesn’t include long-term nursing care, which could bring the grand total to $390,000. Ouch. Plus, health care costs show no signs of slowing down. In fact, health care costs are surpassing inflation by 4.5 percent annually.

How are you going to pay for your medical costs during (your potential 30-year) retirement? Pairing an HSA-qualified health plan (also known as a high deductible health plan) with an HSA is a great place to start. If you’re enrolled in a HSA-qualified health plan through your employer, you can easily open an HSA to help pay for current medical expenses or save money for future medical expenses.

Did we say this money can be saved tax-free? See Myth 4 to learn more about this benefit booster.

Myth 2: You can only use your HSA for what is covered in your health plan.

Truth: You can use it for a lot more. In fact, you can use it for things that are NOT covered by your health plan. (The list is pretty long).

Do you have back pain? Perhaps you’d rather see a chiropractor than your family physician. Does the sun’s glare make it hard to drive? Prescription sunglasses are on the list. Do you have trouble sleeping? A CPAP machine may work. Broke a tooth, need a crown? Seeing your dentist or oral surgeon is on the list, too. Nerve pain? Perhaps acupuncture can help. Trying to start a family? Fertility treatments are available.

There are a lot of medical procedures, therapies, and supplies that you may use now, or will need in the future, that doesn’t fall under a traditional health plan. But you can use your HSA funds for all of these medical expenses. More good news, right?

Myth 3: You need to pay for routine physicals and immunizations.

Truth: You can get preventive care (usually without using your HSA funds).

All HSA-qualified plans include preventive care. This means your routine physicals with your doctor, immunizations, and cancer screenings do not count against your deductible. In other words, you do not have to pay for them out of your own pocket and you can keep saving your HSA funds for other medical expenses.

Myth 4: You can’t save money with HSA tax benefits.

Truth: You can save quite a bit tax-free.

You can save thousands of dollars tax-free, depending upon your income and how much money you choose to put into your HSA over time.  In fact, an HSA is the only savings account with three tax-saving benefits:

First, you can reduce your taxable income and in doing so reduce your federal, state and FICA taxes.

Second, the money in an HSA can be saved or invested tax-free similar to your 401(k).

Third, the money can be taken out tax-free, as long as it is used for qualified medical expenses.

Myth 5: If you don’t use it by the end of the year, you’ll lose it.

Truth: You won’t lose it, in fact, you can save it and watch it grow.

Many people get a bit confused about all of the acronyms thrown around when it comes to health care. FSA? HSA? First, there are a lot of differences between a flexible spending account (FSA) and a health savings account (HSA). But the big one is this: Unlike an FSA, the HSA is not a “use it or lose it” benefit to be used within a year. Instead, you can keep saving your HSA funds, and take the money you’ve saved in an HSA with you if you change jobs or find yourself in between jobs. The money is yours. Repeat: The money is yours.

 

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