An HSA can offer an excellent way to save and pay for healthcare expenses. It can help to minimize upfront medical costs significantly. The plan can provide convenience and tax benefits but has its limitations. By adding details about your contributions and expenses, you can see what a health savings account may be worth. This can help you decide if this type of plan will meet your healthcare needs, or if you should look into other health coverage.
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What is a health savings account?
A health savings account (HSA) is a tax-privileged savings account intended for medical expenses. It is available to individuals with high deductible health plans (HDHP). The account is designed to give people flexibility and control over their health spending.
Any money put into the account will receive earnings from selected investments. The profits can be a great help in retirement or if medical emergencies arise. Plus, the money and gains are yours to keep.
The main appeal of an HSA is the trifecta of tax benefits. All deposits made into the health savings account are made
, and the invested money
. As long as the proceeds are used for eligible medical costs,
no tax is deducted
from your earnings.
Under the right circumstances, an HSA can be a great medium to save up for mounting health care costs. Having a calculator can help you estimate the value of the account and structure your contributions to get the right level of growth and security.
Who can set up a health savings account?
To set up a health savings account, you must have a high deductible health plan (HDHP). To qualify, your insurance deductible must be at least $1,300 as a single beneficiary. As a family, it must be $2,600. Typically HDHPs have lower monthly premiums to offset the higher upfront costs.
Who should invest in an HSA?
A health savings account has many benefits and limitations. You will have to weigh your options, and health care needs when considering an HSA. It is essential to work out your budget before deciding if this plan is right for you. Because medical expenses can be difficult to predict, sometimes it can be challenging to budget correctly.
An HSA may not be suitable for you if you are nearing retirement or have health problems. It can be tough to make adequate contributions and even deter people from seeking medical care if they had a hard time growing their savings.
On the other hand, a health savings account can give you complete control over how much money is put towards medical expenses. It also lets you dictate how the tax-free funds are spent. Any capital that is not used by the end of the year will continue to grow in your account until you use it. That makes this type of account most useful for people with minimal medical concerns. It will also appeal to those who have enough income to pay for their regular medical costs as it can be a great tool to accumulate your savings if you have already maxed out your 401k contributions.
HSA rules and limitations
As of 2018, the contribution limits are
for singles and
for families each year. There are annual catch up contributions of
, which are available after the age 55. In some cases, your employer may even offer matching contributions. Typically, investment options are not as good as other retirement plans. The fees tend to be higher too.
HSAs have strict rules about how and when earnings can be accessed. Your earnings can be used for various qualified medical expenses. Some account holders use the funds to pay the high deductibles so insurance benefits can take effect. Others prefer to put the money towards costs not covered by the policy like glasses and eye exams.
However, it is most beneficial to reap the long-term benefits of letting the money grow tax-free. If the funds are ever used for
non-qualified medical expenses
, the money will be
taxed at the regular rate
. If that happens before the account holder reaches
65 years old
, there is an additional
charged to the account. As you can imagine, it could become quite costly to deviate from the program rules.
Using the health savings account calculator
The HSA calculator is designed to help you estimate the future value of a health savings account. You can use this tool to try out different contributions and maturities for different saving goals. With this information, you can make an informed decision about your health spending.
The HSA calculator has two parts: an information intake and a results section. You will need to provide some details about your insurance plan and savings approach. Let’s review this information together.
: Please identify whether your high deductible health plan is for single or family coverage. You can make this indication using the drop-down menu on the first line of the calculator. Then add the deductible amount to the second line.
: On the third line of the calculator you may specify how many years you plan to save for your retirement. You can use the arrows to make this input easier.
: On the next two lines include the current balance in your HSA and the amount you want to contribute each month.
: On the sixth line of the calculator you can add any regular monthly expenses coming out from the account.
: Next, you can document the rate of return (growth rate) on your health savings account. Then add your marginal tax rate and an expected rate of inflation on line eight and nine.
: Please proceed to view your results.
Your health savings account results
Once your information has been the system will generate a report detailing the future value of your HSA.
The first tab below the inputs, saving balance by year, shows the growth of your health savings accounts over time. You can view your earnings in blue and the value after inflation in green. It is assumed that you will continue contributing to the account until retirement. Inflation is necessary to factor in so that you can maintain the quality of life and care you deserve.
The next tab, HSA savings results, provides a summary of your account balance each year. Here you can view your interest earnings. You can also see how any spending on the account will impact the total account balance.
An HSA can be an excellent way to diversify savings. It can be an alternative option to retirement accounts, mutual funds, or stocks. It is important to balance risk and reward, and research all your potential prospects. Overall, this type of savings account seems most suitable for healthy individuals that want to save for retirement expenses. However, others may find that FSAs or insurance plans with lower co-pays are more suited to their needs.
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