We never really value our health until it fails us. And then we find out how valuable medical bills can be in the aftermath of medical emergencies. Opening an HSA can help you mitigate such issues.
According to Healthcare.gov, staying in the hospital for three days could result in a $30,000 medical bill. Suffered a broken leg? A hospital might charge you over $7,500 to set it.
Over 28% of Americans have medical debts totaling at least $10,000.
And while statistics vary according to who you ask, about 29 million Americans have no medical insurance. And almost just as many Americans have inadequate medical insurance coverage.
What many Americans don’t know is that if you have a regular paycheck, you can create your own tax-free bank account for medical expenses.
All you have to do is get yourself an HSA. It offers tax-free benefits as long as you make purchases related to health and medical issues.
What is an HSA?
An HSA is a health savings account. In other words, it’s a self-created savings account that exists solely for withdrawals related to health and medical-related issues.
You can open an HSA through your employer or through any bank that offers it. It is up to you to put money into it on a regular schedule. But instead of saving money for interest, you are saving this money to guard against medical emergencies.
And opening an HSA has many tax benefits.
Every contribution you make to an HSA is tax-deductible and untaxable. All the money that sits in an HSA cannot be taxed. And as long as you only withdraw money from an HSA to pay for health and medical-related issues, then all withdrawals are tax-free.
Just make sure to use a debit card to make purchases. If you use cash, keep all your receipts for later reimbursement. (Always keep your receipts either way.)
An HSA can be used as a supplement to a job-sponsored or private medical insurance plan. It can also act as a temporary buffer against potential medical debt if you don’t have medical insurance.
The average American has $2,803 saved in an HSA. And they primarily use them to pay for doctor’s bills.
And after the ratification of the CARES Act in 2020, you can use an HSA to pay for a lot more things now.
You Can Buy More Things Tax-Free With an HSA Now
The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, was passed in March 2020 to offer economic aid and benefits during the pandemic.
The CARES Act greatly expanded the kinds of products and services that you can purchase with an HSA.
There are many things you can now buy tax-free with an HSA as long as they are health or medical-related.
They include, but are not limited to:
- Over the counter meds
- Menstruation products and medications
- AA Meetings
- Emotional support animals
- Prescription sunglasses, glasses, or contacts
- Travel costs related to medical care
- Chiropractor services, acupuncture, and weight loss programs
- First aid kits
- Sunscreen with an SPF factor of 15 or higher
- Nasal sprays
Consult Your Tax Advisor
Don’t take for granted your ability to make such an HSA-related purchase. Consult with your tax advisor before you start making such purchases.
Check out this full list of things you can buy via an HSA tax-free.
Opening an HSA is not a quick fix to medical debt or an impenetrable buffer against medical emergencies.
It takes months or years of financial contributions for it to become beneficial to your needs. So, start one as early as possible and contribute to it often.
And treat it like an emergency fund. Don’t withdraw from it unless it’s health or medical-related. You will just be taxed anyway.
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