How to Choose the Best Health Savings Account
Ever since the passage of the Patient Protection and Affordable Care Act (PPACA), Americans have shown a renewed interest in health savings accounts, or HSAs. These versatile, tax-advantaged savings accounts were created for individuals and families with high-deductible health plans (HDHPs) with the goal of helping them save money to cover their own medical bills.
If your health plan helps you qualify for an HSA, you gain several important benefits. For starters, the money you invest in an health savings account is tax-deductible, meaning you can use your contributions to reduce your taxable income. Second, the money in your HSA grows tax-free until you need it for a qualified medical expense. Lastly, and more importantly, you can use your HSA funds for anything (without penalty) once you reach age 65.
That last part is why we’ve called the HSA the best retirement account you’ve never heard about in the past, and why many people max out their HSAs regardless of their anticipated healthcare expenses. If you can make it to age 65 with some or all your HSA money intact, you can access it tax-free and spend it on whatever you want, taking advantage of a triple tax break.
Health savings accounts (HSAs) may be an important part of anyone’s financial plan, but they’re not available to everyone. To qualify, you must:
- Have a minimum health insurance deductible of $1,300 for individuals and $2,600 for families.
- Have a plan with maximum out-of-pocket expenses capped at $6,550 for individuals and $13,100 for families.
There are limits to the amount you can contribute annually as well. In 2017, individuals are able to contribute up to $3,400 to a qualified health savings account, while families can contribute up to $6,750. Those age 55 and older can also add an additional $1,000 annually in what is known as a “catch-up contribution.”
Eight HSA Administrators, and How They Compare
While some health insurance plans have access to their own HSA, it’s also possible to choose your own. Fortunately, you have more options than ever before. According to a 2016 research report by Devenir, the health savings account market continues to grow and evolve.
In 2016, HSA assets reportedly surpassed the $34 billion threshold and the number of HSA accounts rose to 18.2 million. Devenir projects that the HSA market will exceed $50 billion in assets and 27 million accounts by the middle of 2018.
If you’re thinking of opening a health savings account, it’s important to understand the role of account “administrators.” HSAs are offered online and through banks, brokers, credit unions, and insurance agencies. These firms oversee health savings accounts and determine the fees you’ll pay for administration. They also determine where and how your money is invested, which will obviously affect your yield and long-term growth.
With that in mind, here are eight of the top health savings account administrators in 2017:
|Health Savings Account Administrator||Account Maintenance Fees||Setup Fees||Investment Options||Additional Fees|
|Alliant Credit Union||Basic accounts are free. Investment accounts are $5.95 per month.||$0||Low-cost investment options available for accounts with balances above $1,000. Earn a .65% APY dividend rate on accounts worth $100 or more.||Alliant Credit Union Fees|
|Connexus Credit Union||$0||$5||Earn dividends based on account balance.||Connexus Credit Union Fees|
|Elements Financial HSA||Monthly maintenance fee is $4 unless you carry a balance of $2,500 or more.||$0||Earnings based on account balance. Accounts over $2,500 can invest with TD Ameritrade.||Elements Financial Fees|
|Health Equity||Up to $3.95 per month||$0||You can invest in 26 different mutual funds.||Health Equity Fees|
|Health Savings Administrators||Annual administration fee is $45. Custodial fee is $0.625 per $1,000 every three months with no cap.||$0||Choose to invest with Vanguard, T. Rowe Price, and others.||Health Savings Administrators Fees|
|HSA Bank||Monthly maintenance fee is $2.50, but it's waived on balances of $5,000 or more.||$0||Invest with TD Ameritrade.||HSA Bank Fees|
|Lake Michigan Credit Union HSA||$0||$0||Earn .50 APY for balances up to $5,000, and 1.0 APY for balances $5,000 or more. No other investment options are available.||Lake Michigan Credit Union Fees|
How to Choose a Health Savings Account
Choosing the right HSA for your family works similarly to choosing a new checking or savings account. Not only do you want an account that’s convenient to use, but you want to explore options with the lowest fees and best opportunity for return.
Ideally, you want the ability to invest your HSA funds for the long haul, so any money you don’t need to spend on near-term health issues can grow and help you in retirement. With that in mind, it’s smart to choose an HSA that offers investing options you think you’ll use. And just like your retirement account, the fees HSA administrators charge can really add up. Make sure you understand all applicable fees before you start pouring your savings into a new HSA account.
Also make sure you ask plenty of questions about access. Will your new HSA account offer a debit card, for example? Will you be able to manage your account online? Is it easy to reimburse yourself for qualified medical expenses? All of these factors can play a huge role in which account works best for your needs.
Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.
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Do you contribute to a health savings account? Why or why not?