Myth #1: An HSA is too complicated
Reality: If you can manage a traditional checking or savings account, you can use an HSA.
Health Savings Accounts (HSAs) work just like traditional savings accounts but include several tax advantages that your savings account doesn’t provide.1 And just like checking accounts, an HSA uses a debit card2 that you can use to pay for qualified medical expenses.
Myth #2: If I don’t spend all my funds this year, I lose it
Reality: HSA funds never expire.
When it comes to the HSA, there’s no use-it-or-lose-it rule. Unlike Flexible Spending Account (FSA) funds, you keep your HSA dollars forever, even if you change employers, health plans, or retire.
Want a detailed FSA vs HSA comparison? Check out this article.
Myth #3: The HSA is a spending account, not a savings account
Reality: The HSA’s triple-tax advantage empowers you to accelerate long-term health savings.
Let’s be real: It’s called a Health ‘Savings’ Account for a reason. Almost no other account brings more ways to save.
Here is the HSA’s triple-tax advantage:
- Tax-deductible contributions
- Tax-free growth
- Tax-free use for qualified medical expenses
First, you unlock tax savings when you make contributions. That’s because HSA contributions are tax deductible. If you have an HSA through your employer, you can usually set up pre-tax payroll contribution as well.
Let your contributions and tax savings potentially compound year after year into retirement.
You can always view the latest IRS contribution limits at this page.
Myth #4: I spend too much each year on healthcare for an HSA
Reality: HSAs were purposely designed to help with out-of-pocket medical expenses.
Among the biggest myths in healthcare is that HSA-qualified high-deductible health plans (HDHP) are not great for families that spend a lot of money each year on doctor visits and medications. Most see the higher deductible and believe it will simply cost too much.
Although it’s true that HDHPs have higher deductibles, they also typically have much lower premiums. So, you can save thousands each year simply by choosing an HSA-qualified health plan.
To sweeten the deal, many employers may offer HSA contributions just for choosing an HDHP. In other words, they’ll give you money just for choosing an HSA-qualified health plan.
Finally, an HSA lets you save money for the long-term. Everyone thinks about healthcare expenses this coming year. But what about 10 years from now? Or in retirement? An HSA gives families a tool to save now and for the future.
FSAs don’t give you that power.
Myth #5: An HSA is only available through your employer
Reality: Anyone enrolled in an HSA-qualified health plan can open and contribute to an HSA.
Because HSAs are member-owned accounts, you don’t have to rely on your employer to access an HSA. Unlike FSAs, any eligible individual can open—and contribute to—an HSA, provided they are enrolled in a qualifying health plan.
Many employers that offer an HSA might work with a preferred HSA administrator. However, members are at liberty to open an HSA with any administrator they want. Just be aware you could lose the ability to make pre-tax payroll contributions (though tax-deductible contributions are always available).
Myth #6: I’m too old to benefit from an HSA, they’re for young people.
Reality: HSAs empower you to boost retirement savings.
Projections by the World Economic Forum suggest that the US retirement savings gap could reach $137 trillion by 2050.
The truth is most Americans are behind on retirement. But your HSA is a great way to catch up.
According to recent estimates, the average couple will need $300,000+ to cover out-of-pocket medical expenses in retirement. Given that HSAs let you take tax-free distributions to pay for qualified medical expenses, there are good reasons to prefer your HSA over your 401(k).
In addition, you can use your HSA to pay COBRA premiums (for a spouse not yet Medicare eligible), and long-term care insurance premiums. These options offer great peace of mind.
Best of all: Members 55+ are allowed to contribute $1,000 extra beyond statutory Internal Revenue Service (IRS) contribution limits.
Myth #7: An HSA is only for wealthy people
Reality: HSAs deliver amazing savings that benefit all income levels.
First, HSA-qualified health plans usually include significant premium savings. Then, whatever you don’t spend on annual health insurance premiums can be put away for a future healthcare emergency.
HSAs also let you use pre-tax contributions to pay for qualified medical expenses. When it comes to healthcare spending, your HSA works very much like an FSA. The difference is that HSAs also give you added flexibility to save funds that you don’t spend in a plan year.
Myth #8: HSA contributions don’t grow.
Reality: You can invest your HSA tax-free, like a 401(k).
Tax-free investment earnings can help supercharge your long-term health savings. Then you can use your health savings tax free to pay for thousands of qualified medical expenses.