Home Trending Should I Open an HSA? | Education Loan Finance

Should I Open an HSA? | Education Loan Finance

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Few things have the potential to wreck your financial wellness quite like your physical health. A lingering ailment or a sudden injury can throw a wrench into your finances with enough force to ripple into the ensuing decades. It’s wise to carefully consider the various protective measures available to both reduce the worry of something happening, and soften the blow.

What is an HSA?

Traditional Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) plans cover most expenses with a percentage based co-pay and relatively low deductibles. The Health Savings Account (HSA) allows for a much more individual approach to health care. With an HSA, you can make pre-tax contributions into a special savings account and simultaneously lower your tax burden.

Not to be confused with a Flexible Spending Account (which can only be established by your employer), you can open a Health Savings Account through your employer or as an individual through your bank.

The primary requirement for an HSA is to be enrolled in a High Deductible Healthcare plan (HDHP). These plans come with a minimum/maximum deductible of $1,300/$6,500 for individuals, and $2,600/$13,100 for families. Other requirements include that you not be covered under any other healthcare program and not be claimed as a dependent on anyone else’s taxes.

How to take advantage of the HSA

Think of it as an emergency fund specifically for your medical expenses. By assuming greater responsibility for covering your own medical expenses, you can significantly lower your monthly premium and can instead put that tax-free money into an HSA.

Obviously, if a medical issue arises, you’ll have to pay the entirety of your deductible before your HDHP provider will step in to assist. This is where your HSA can come in handy to help supplement your out-of-pocket expenses.

While there is a limit to your annual contribution ($3,400 for self-coverage and $6,750 for families), the money in your HSA can be rolled over year after year, thus building a more substantial safety net for you and your family. If you’re currently healthy and are willing to wager against the possibility of a serious accident, the HSA is a great option for incredibly affordable healthcare.

Downsides of HSAs

There are, of course, a few downsides to both the HDHP and the HSA if you were to have a serious accident or suddenly become ill. Unless you’re a few years into your account and have diligently built up your savings, it can be quite difficult to meet the high deductibles even with your HSA.

Another common drawback for HSAs is that you may be reluctant to seek healthcare when you need it, because you don’t want to dip into your savings. That’s the same thing as shying away from your emergency fund when you have an emergency. The HSA is intended as a buffer and shouldn’t discourage you from getting help.

Misconceptions of HSAs

HSAs also have common misconceptions about their practicality that are certainly worth noting. While there are substantial tax benefits associated with HSAs, some people are tempted to use HSAs as a generic emergency fund. Since early withdraws and fees on nonmedical expenses are taxed 20% (ouch!), it’s probably best to avoid this method at all costs.

Furthermore, HSAs can lure customers with their investment potential in mutual funds and stocks. Unfortunately, their ability to be invested doesn’t necessarily translate to a high investment return. Experts advise customers to think carefully before signing up for a high deductible health plan, especially regarding their investment capabilities.

Run the numbers, trust your gut

At the end of the day, health care is all about running the numbers and weighing them against your peace of mind. “How much is enough coverage for the next year and how much is it going to cost me?”

HDHPs and HSAs are a good form of insurance if you’re young and healthy. The tax advantages and investment capabilities of an HSA and HDHP should in no way influence your decision. Your decisions should be based off the amount of premiums you’ll save, the deductible proposed for a comparable PPO plan and the out of pocket spending caps associated with each policy. Basically…do your research, watch your health and plan accordingly. Simple enough, right?

Unless you’re hardcore off the grid and don’t need a credit score or credit history (not advised), you’re going to need bank accounts and at least one credit card. If you need them anyway, why not find the accounts that pay you back? There are tons of promotions for cards and accounts that will give you perks for signing up. It’s up to you to determine what account fits your needs, but these are the main types of offers we’ve seen.

 

Cards with Cash Back

Some people swear by cards that give them cash back. Cashback rewards tend to work best for people who use their credit card for all or most purchases and then pay it off in full each month. A quick tip is to pay the balance off before the interest accrues each month. If you choose not to pay off the balance each month you could actually be spending that money. Basically, what you pay in interest is going to reduce or even negate your reward. The average individual will not pay off their card’s balance each month this is how it makes sense for the credit card company to offer the reward. If you’re smart about it and don’t charge more than you can pay off each month, you’ll reap the reward.

 

There are multiple options for receiving cash back rewards. How you cash back will be applied will be dependent on what your credit card provider allows. Some cards will allow you to redeem your cash back for gift cards, paper checks, direct deposits, or even putting the cash back you earned back to your credit card balance.

 

If you believe that this type of card is best for you, understand the redemption threshold. Cash back credit cards often have a minimum redemption threshold. A minimum redemption is the amount of rewards that you must achieve before cashing in your cash back rewards. These redemption minimums can often be associated with reward credit cards as well.

 

Cards with Rewards

If rewards like frequent flier miles or points you can redeem for travel expenses are more your speed, check out cards with other types of rewards. Look at the conversion from dollars to points to what your points can be redeemed for. If you have to spend $10,000 for a $100 gift card, then that probably isn’t enough of a reward for you to care. But if you fly often for work or find a card that has good travel rewards and you can pay it off each month, this might be a nice way to add to your travel nest egg or get a good discount on a few trips each year.

 

How the rewards are calculated will be determined based on the credit card that you select and get approved for. Some reward cards will provide the same rewards rate per purchase regardless of balance. Another type is similar to a tiered cash-back credit card. Each purchase you make will fall into a category. Some categories offer a larger return than other categories.

 

A quick word of caution before signing up for a card like this is to know the type of borrower you are. If you typically do not pay your credit cards on time, have a balance, or budgeting is not your strong suit this is probably not the right credit card for you.

 

 

Cash Rewards on Bank Accounts

Bank accounts often offer cash rewards for signing on or setting up an account. You may often times see at your local community bank a large sign in the window with an amount on it for new customers who open up an account. This sign-on bonus is by far the most common type of cash back for a bank account. When considering opening up an account to get the sign-on bonus there may be conditions you have to meet. The small print and terms are so important when opening up any type of account. When opening an account, you have to make a pretty substantial initial deposit, and you might have to maintain it for a period of time as well in order to keep the sign-on bonus. You don’t want to count on a reward and then find out that it requires you to deposit $20,000 if you don’t have that much money.

 

Conditions can include a number of direct deposits or purchases you have to make within a certain period to qualify. This type of offer is fairly common when looking into high-yield checking or savings accounts. You’ll typically be required to have a specified number of transactions per month and have to have a direct deposit. If you’ve read all the terms and small print and feel the account is the right choice you should move forward.

 

Other Things to Consider

 

Know the Interest

If you are looking at a card for the rewards and it has a much higher interest rate than others, this should weigh into your decision. Even if you plan to pay the card off each month, you don’t want to end up using it in an emergency and struggle to make payments with interest later. If you already have other credit cards, have a plan for which card should be used where and how you’re going to pay them.

 

Look at Annual Fees

Some reward and cash-back cards have a pretty hefty annual fee. Don’t sign up for a card until you know what the annual fee is. Make sure if there is a fee, that it makes sense for how you intend to use the card. If saving money is the name of the game for you, look for a card with no annual fee.

 

Know the Requirements

Requirements for different types of accounts vary wildly. There could be a minimum deposit, amount, number of purchases, or balance. Many companies utilize different types of requirements that you may have to meet to get rewarded. Keep an eye out for those requirements and see if you qualify. If it doesn’t match your situation, don’t do it.

 

Check the Terms and Conditions

Always read the fine print and make sure you understand it. This rule should be applied t anything and everything. Make sure you’re reading any documentation fully and that you understand. Reading the terms and conditions will help to prevent any surprises. If there’s something you’re not sure of, read further or talk to customer service for more information. You always want to be sure that you know what you’re getting into before you sign up so that you don’t end up in a bad situation.

 

 

Cards with Cash Back

Some people swear by cards that give them cash back. Cashback rewards tend to work best for people who use their

Cards with Rewards

If rewards like frequent flier miles or points you can redeem for travel expenses are more your speed, check out cards with other types of rewards. Look at the conversion from dollars to points to what your points can be redeemed for. If you have to spend $10,000 for a $100 gift card, then that probably isn’t enough of a reward for you to care. But if you fly often for work or find a card that has

Cash Rewards on Bank Accounts

Bank accounts often offer cash rewards for signing on or setting up an account. You may often times see at your

Other Things to Consider

 

Know the Interest

If you are looking at a card for the rewards and it has a much higher interest rate than others, this should weigh into your decision. Even if you plan to pay the card off each month, you don’t want to end up using it in

Look at Annual Fees

Some reward and cash-back cards have a pretty hefty annual fee. Don’t sign up for a card until you know what the annual fee is. Make sure if there is a fee, that it makes sense for how you intend to use the card. If

Know the Requirements

Requirements for different types of accounts vary wildly. There could be a minimum deposit, amount, number of purchases, or balance. Many companies utilize different types of requirements that you may have to meet to get rewarded. Keep an eye out for those requirements and see if you qualify. If it doesn’t

Check the Terms and Conditions

Always read the fine print and make sure you understand it. This rule should be applied t anything and everything. Make sure you’re reading any documentation fully and that you understand. Reading the terms and conditions will help to prevent any surprises. If there’s something you’re not sure of, read further or talk to customer service for more information. You always want to be sure that you know what you’re getting into before you sign up so that you don’t end up in a bad situation.

 

 

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