Reasons Why Health Savings Accounts Show Rise in Popularity

More and more Americans are definitely availing of a health savings account (HSA). November 2013 figures show HSAs have accumulated up to $18.1 billion in assets nationwide since they were introduced in 2004. In a nutshell, a health savings account helps you save on future medical expenses on a tax-free basis. It is easy to see why health savings are getting more popular:

  • You don’t lose the funds you contribute by the end of the year
  • You can actually reduce tax liabilities while seeing your money grow
  • You get medical coverage for expenses not typically covered by standard health plans
  • Your savings are all yours to keep or do as you please–tax-free

What is HSA?

An HSA is a medical savings account available to American taxpayers enrolled in the high-deductible health plan (HDHP). Except in California, New Jersey, and Alabama, contributions made by enrollees are exempt from federal taxes. By making regular contributions to individually owned accounts, taxpayers can access funds anytime to cover qualified medical expenses. If you can’t make a withdrawal after a year of contributions, the funds will roll over onto the next year and keep on accumulating.


Health savings accounts are specifically designed to be favourable to tax payers. Tax-deductible dollars can be put in a health savings account, reducing one’s taxable income. This means you pay less taxes! Another benefit of a health savings account is the capacity to make tax-free withdrawals. Account holders can earn interest, which are also non-taxable, on their HSA.

Individual control

A health savings account is completely controlled by the individual, who is empowered to make quality healthcare choices. The account holder can deduct the money to contribute to an HSA from their taxable income when filing an income tax return. As a result, you get lower tax liability the more you maximize your HSA contribution. At the end of the year, you don’t lose your “savings.” They are all yours to save, spend, and invest as you like.

Pay zero taxes on medical expenses

Health savings accounts are extremely convenient for when you need to pay for medical expenses not covered by your standard health plan–tax-free. To many, getting coverage for expenses like dental care, orthodontia, and ophthalmology have become an absolute necessity. An HSA may also be used to cover part of expenses already covered by your health plan such as deductibles and coinsurance.

A form of investment

With the American people having suffered serious economic blows in the last decade, a HSA would be a relatively low-risk and safe investment. Your money will only continue to grow. Accumulated HSA funds can be used for other forms of investment including stocks or mutual funds.

HSAs for retirement

Some financial planners like Laura Medigovich recommend that the best way to benefit from your health savings account is to just allow it to grow tax-free until retirement. As HSAs do not have a use-it-or-lose-it provision as with other flexible spending arrangements, you can actually grow your HSA funds and be able to make tax-free withdrawals to pay for qualified healthcare costs after you retire.

When you reach past the age of 65, non-qualified withdrawals from your health savings account are allowed, subject to tax but not to a penalty. This works pretty much the same way as 401(k) and IRA withdrawals in retirement.
Contributors approaching retirement might do well to heed this financial advice. This strategy might also be worth considering for individuals in the high-income bracket who have maxed out regular retirement accounts.

About the author:

Gilbert Bermudez writes for Compare Hero, Malaysia’s leading credit card comparison website. Loves fishing, swimming and a hobbyist.

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