masikafinance

For those who live in Canada and USA, you must have heard of a Health Savings Account commonly known as HSA.

HSA is very important especially in USA where health care cost is high. This account has triple tax advantages.

First, it is pretax and therefore it reduces your taxable income. You pay less in tax when you have HSA through your employer for the amount you contribute up to the capped maximum for that year.

Second, when you use the money to pay for health care cost for yourself or a dependent (s) you claim in taxes, the funds are not taxed! If you use the funds for any other reason other health care, you will pay tax and possibly a penalty.

Lastly, the money in your savings account can be invested and grow tax free. This is another opportunity to invest your money. This can potentially lead to growth of your money passively.

HSA is very helpful especially in USA that has high cost of health care. If your employer offers it, talk to them. Some employers contribute some amount to your HSA. For example, some local employers contribute $1000 to participating employees. Every year this can build up and help you in case you have a medical emergency.

Additionally, money you have in your HSA account is yours forever even if you leave your current employer. If you end up not using the funds in your HSA account, you can withdraw the funds at your retirement without any penalty and no taxes for medical costs.

The only downside of HSA is that you would have to be enrolled in a medical plan through your employer to contribute. This means if you do not sign up for insurance with your employer, you won’t be able to contribute to HSA.