Health savings accounts (HSAs) provide a tax-advantaged way to save and pay for health care costs. If you have a high-deductible health plan (HDHP), you can contribute pretax income into an HSA and use the money to pay for qualified medical expenses.
The rules and requirements for participating in an HSA can be a little confusing. As a result, misinformation has given rise to several myths that deter people from taking advantage of HSAs. Let’s take a look at some of the most common ones. (See also: 10 Reasons an HSA Is Actually Worth Having)
1. HSA funds are lost if you don’t spend the money by the end of the year
This is a point of confusion that tends to scare people away from participating in a health savings account. It’s not true. Funds leftover in your HSA are not lost at the end of the year, they are yours until you spend the funds. The prevalence of this myth comes from a different health program, the flexible spending account (FSA). You do lose funds in an FSA if you do not use them by the end of the year.
2. You can only earn low interest on your HSA funds
Actually, you don’t have to leave your HSA funds in a low-interest savings account. You can invest HSA funds in stocks and other investments for higher growth potential. This is especially beneficial if you don’t plan to spend your HSA funds any time soon and can take advantage of tax-free growth for as long as possible. Investment options vary by HSA provider, and some require a minimum balance (such as $1,000) before you can put your HSA funds in investment options.
3. HSA funds can only be used for hospital bills and major medical expenses
Health savings accounts are not only for major medical costs. The IRS identifies a long list of health-related expenses that HSA funds can be used to cover, including smaller expenses that may surprise you. A few examples include:
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