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Why Millennials Should Care About HSAs (From A Millennial)

Let’s face it, there are a lot of things competing for our cash these days. Student loans, building up our emergency funds, or, dare I say, a fun trip or dinner out with friends? Trust me, I get it. But for millennials, contributing to a health savings account (HSA) should be high on the list of how we use our dollars.

Simply put, HSAs are tax-advantaged savings accounts you can use to pay for or reimburse yourself for medical expenses. The money you put in is tax-deductible or tax-free, your money grows tax-free, and you can withdraw funds tax-free to pay for qualified medical costs. And unlike flexible spending accounts (FSAs), HSAs don’t have any use-it-or-lose-it rules; they roll over each year and stay with you if you switch jobs.

To open an HSA, you must also be covered under a high deductible health plan (HDHP). HDHPs tend to have higher deductibles (the amount you’re responsible for paying in full) than traditional plans, but they also typically have lower monthly premiums.

If you’re generally healthy and don’t go to the doctor often, an HDHP will actually save you money. Instead of shelling out on monthly premiums for services you don’t use, HDHPs keep monthly premiums low so you’re rewarded for staying healthy. If you’re switching from a traditional plan, a great saving strategy is to put the difference between your previous higher premium and your current one into an HSA. That way, when you do have to go to the doctor or pick up a prescription, you have tax-free money at your disposal.

In addition to saving you money on current medical expenses, an HSA can also help you prepare for future healthcare costs. If you’re able to pay out-of-pocket for qualified medical expenses, you can invest the money in your HSA just as you would the money in your retirement account. Basically, your HSA becomes a medical 401(k) instead of just another savings account, and you don’t have to pay taxes for qualified healthcare costs.

And with HSAs, you can reimburse yourself any time for qualified medical expenses … in a week, in a year, or thirty years from now. So if you pay for qualified medical expenses out-of-pocket, make sure to save your medical receipts so you can reimburse yourself down the road once your HSA has had time to grow. And the best part is, you can reimburse yourself tax-free, then spend those funds however you like, no questions asked. That’s the secret of shoeboxing.

One of millennials’ greatest advantages (besides our good looks, of course) is that we have lots of time before retirement. Whether you choose to invest your HSA money or not, this matters for you. If you do invest, that means your money has more time to earn interest and grow. Even if you can’t contribute much now, the compounding interest you’ll get over time will grow your funds significantly.

If you can’t pay medical expenses out-of-pocket and pay with HSA funds, time is still on your side. Ideally, you and/or your employer are putting money in your HSA each paycheck. So, if you have an unexpected $800 medical expense but only have $500 in your HSA, you can use up your $500 and pay $300 out-of-pocket. Then, you can reimburse yourself for the $300 once you build up the funds in your HSA.

Opening an HSA is one of the best choices we millennials can make now to set ourselves up for a more secure financial future. Our Boomer selves will thank us later.

For more information about health savings accounts, call us at (888) 354-0697. Or, click here to open an account.

Author: Ginny Latham