A Health Savings Account (HSA) is one of the most underappreciated vehicles for savings and investments in America. For those who are unfamiliar, you have a right to open a health savings account if your health insurance plan makes you eligible for one. This normally involves having a high-deductible plan.
Unlike Flexible Spending Accounts (FSAs), which many employers offer, the money that you put into an HSA doesn't magically disappear like Cinderella's pumpkin coach at the stroke of midnight on December 31st. Instead, the money that you put into the account will stay with you until you cash it out.
But that's just the beginning of the advantages. Crucially, an HSA is one of the only accounts you will ever find that is triple tax-advantaged:
- Money that you contribute to an HSA is tax deductible.
- Growth in your HSA -- that's right, you can invest your HSA money in ETFs and mutual funds -- is completely untaxed.
- Disbursements for qualified medical expenses are tax free.
As you may know, healthcare is one of the few areas where spending actually increases in retirement. In virtually every other category, this isn't the case. Combine all of this, and you can see why HSAs can be such a valuable investment tool.
HSA Changes for 2016: What you need to qualify
In 2016, in order to qualify to open an HSA, your health plan must have the following characteristics:
- If single: The minimum deductible is $1,300, with the maximum out-of-pocket expense of $6,550.
- If a family: the minimum deductible is $2,600, with the maximum out-of-pocket expense of $13,100.
The deductibles remain the same in both classes, while out-of-pocket expense maximums were raised by $100 and $200, respectively.
HSA Changes for 2016: Contribution limits
For those looking to take advantage of an HSA, you'll be happy to hear that some limits have increased.
- If single: The maximum contribution is $3,350. If you are 55 or older, the limit is $4,350.
- If a family: The maximum contribution is $6,750. If the head of household is 55 or older, the limit is $7,750.
While the limits for individuals remain the same as last year, those for families increased by $100.
Critically, if you feel that you should have qualified for an HSA in 2015, but are only now becoming aware of it, you have until April 15th to open and fund your account for 2015.
If you'd like to read more about HSAs, we've got you covered. And if you'd like to make 2016 the year you make your HSA into a stealth retirement vehicle, we also offer a powerful strategy that takes advantage of HSA rules to help you retire comfortably.