Annual Enrollment: Should You Open an HSA?
November is the month for many American workers to fill out their annual enrollment selections for next year. This is a good time to review what HSA is and whether it is a good option for you.
HSA stands for health savings account. Only people who enroll into a high-deductible health plan is allowed to open HSAs. HSA offers several attractive tax benefits: you contribute pre-tax dollars (which will lower your current year tax obligations); your money in HSA will grow tax-free; in the future, you can withdraw money tax-free from your HSA to pay for eligible medical expenses. Unlike an Health Spending Account, the money you don't use for medical expense in your HSA can be carried over to next year and the year after. So if you are healthy and don't anticipate any major health related operations next year, enrolling in a high-deductible plan and opening an HSA is a good way to save for retirement.
However, HSA is not for everybody. In order to open an HSA, you must sign up for a high deductible medical plan. For 2020, it means an average annual deductible of $1,400 or more for an individual, or $2,800 or more for family coverage. So if you have trouble to put aside enough money to cover such high deductible, HSA is not the right option for you.