Why health savings accounts matter

Millennials say they’re interested in Health Savings Accounts — in the abstract. 

New research from Lake Success-based Broadridge Financial Solutions found that of the more than 1,000 people surveyed, more than half of those who were millennials said they are interested in HSAs. However, only one-third of millennials had HSAs, and 43 percent were not familiar with them at all.

What you don’t know can have consequences. Here’s why HSAs matter.

Time is on your side

HSAs provide a triple tax advantage: They are deductible (or are made pretax if done via payroll deductions), they grow tax free, and withdrawls are tax-free if they are used for medical expenses. They also allow you to invest in mutual funds, ETFs and other investments, like an IRA or 401(k). You own the account, which stays with you if you change jobs. 

“If your employer only offers a high-deductible [health insurance] plan, you would be smart to have an HSA. Millennials due to their youth likely prefer high-deductible health care plans. A high-deductible plan is necessary to have an HSA. And millennials are less likely to have . . . health care issues than older individuals,” says Tim Slavin, Broadridge’s senior vice president of retirement services.

With studies showing that retirees spend, on average, $250,000 on health care, millennials can put away money in their HSA and reduce their need to tap their other retirement accounts to pay for medical care, Slavin says.

Know the rules

If you have out-of-pocket health care expenses, you can withdraw directly from your HSA account with no tax consequences. You can treat your HSA like a Flexible Savings Account, which means you can use the money for current health care costs, and you can also let it accumulate for later.

You aren’t required to use HSA distributions on medical expenses. “But if you don’t, you’ll have to pay income tax and an additional 20 percent tax on the distributions,” says Michael Eckstein, owner of Eckstein Tax Services in Huntington.