Health Savings Accounts Pros and Cons


Saving for a retirement is more important than ever. Not only are the costs of retiring increasing, the costs of healthcare are continuing to rise as well. A Health Savings Account [HSA] offers a solution to the costs of care now and into the future by creating an IRA-style account that can build wealth. Here are some of the pros and cons of starting an HSA.

The Pros of Health Savings Accounts

1. You get to be in control of how you build your wealth.
If you have a knack for picking stocks, then you can create a lot of wealth in the HSA. Although there are contribution limits every year, the wealth can be built to any level. The accounts are tax-deferred as well, eliminating any taxation worries until a withdrawal needs to be made.

2. They can pay for qualified expenses now.
You don’t have to wait until retirement to benefit from the HSA. There are no early withdrawal penalties to pay for qualified medical expenses. Like retirement plans, the early withdrawal penalties go away at a certain age as well.

3. Couples can contribute to individual plans.
For those who are married, each spouse can have their own HSA that can be built up to provide for qualified medical expenses. The contributions come from pre-tax dollars in most circumstances as well, potentially allowing for a lower tax rate on withdrawal.

The Cons of Health Savings Accounts

1. There are very high deductibles.
Although premiums are less every month when contributing to the HSA, the overall value is not always better. There are high deductible requirements that must be met and that can be difficult on a family.

2. There’s a double penalty.
Other accounts have a 10% early withdrawal penalty when the terms and conditions are not met. HSAs have a 20% early withdrawal penalty if money is taken out for non-qualifying expenses.

3. The fees can begin to add up.
Although not every HSA charges monthly fees, many of them do. These fees are generally low, but they do add up over time to become a hefty sum. You may need to have a certain minimum balance to avoid these fees.

Health savings accounts can be beneficial to many, but they might not be right for you. Consider these pros and cons today and you’ll be able to make an informed decision on the matter.