There isn’t much to like about high-deductible health insurance plans. If you have one, you may already be spending thousands of dollars out-of-pocket on healthcare each year. Before meeting the deductible, it can be tough to afford the basics. Unfortunately, these plans have become the go-to choice for many larger companies—and this costly trend is likely to continue.
High-deductible plans may offer one benefit, though: the option to contribute to a health savings account, which allows you or your employer to set aside pre-tax money for health expenses. These accounts may not be enough to offset your medical bills—particularly if you are chronically ill—but you can save money by taking a tax deduction for your contributions.
While most people spend their health savings account balance every year, you have the option to roll over the money for as many years as you want—and take it with you when you change jobs. There is no deadline to spend the balance, and you can reimburse yourself for qualified medical expenses anytime—even years later—if you save the receipts.
Another lesser-known strategy is the ability to use your health savings account for retirement savings. If you’re not spending the balance every year, you have the option to invest it. The benefits of this tactic are two-fold: you may grow the money tax-free and withdraw it anytime (without paying a penalty!) for medical expenses.
There are even more options for your health savings account once you turn 65. After reaching this age, you may withdraw the money penalty-free from your health savings account for any purpose—including healthcare or other living expenses. This makes your health savings account kind of like a Roth IRA for healthcare—only better, because it offers three ways to save on taxes. Your health savings account offers a tax deduction for contributions, tax-free growth, and tax-free withdrawals.