8 Myths About Health Savings Accounts — Debunked!


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:

  • Acupuncture

  • Bandages

  • Chiropractic treatment

  • Contact lenses

  • Dental care

  • Eyeglasses

  • Hearing aids

  • Prescription drugs

  • Physical exams

  • X-rays

(See also: 11 Surprising Things Your HSA Will Cover)

4. You can't get an HSA if you are self-employed

Many employers offer HSA programs as a benefit. Some even kick free money into HSA accounts for employees. However, you don't need to have an employer to open a health savings account. If you sign up for a high-deductible health plan (HDHP), you can fund an HSA through an HSA provider and get all of the same tax benefits.

5. If you never have health expenses, you'll never be able to use your HSA funds

Most people can expect to have significant medical expenses at some point in their lives, especially as they get older. But what would happen to your HSA funds if you stayed healthy and never had any health care expenses? Beginning at age 65, you can withdraw your HSA funds for any reason without penalty, only paying income tax on funds you draw. This feature means that your HSA effectively turns into a traditional IRA when you hit 65, with the added benefit that if you do have qualified health expenses, you can access your HSA funds tax-free for those costs.

6. High-deductible health plans only benefit healthy people with low health care costs

If you have a lot of medical costs, you may decide that it doesn't make sense to sign up for a high-deductible health plan when a low-deductible plan will step in earlier to pay for your care. This isn't looking at the whole picture. The advantages of using an HSA can turn out to be a smart choice for many individuals and families. The higher potential out-of-pocket health care costs with an HDHP can be offset by the lower premiums and tax benefits of a health savings account. You can use an HSA vs. traditional health plan calculator to help you decide which is best based on your anticipated health expenses.

7. HSAs are a hassle to use

This is one of the myths that stopped me from signing up for an HSA at first. I worried that it would be too difficult to get funds out of my HSA when I had medical expenses. However, I found that it is actually easy to access HSA funds. These are some of the features that make an HSA so easy to use:

  • You can get an HSA debit card to use when paying for health care expenses.

  • You can write a check to pay for medical expenses, then transfer money from your HSA into your bank account to cover it.

  • Health savings accounts typically have online tools you can access from your computer or phone to check your balance and see a record of your transactions.

8. If you lose your job or change employers, you lose your HSA funds

Not true! HSA funds are portable from one employer to another, and you get to keep your HSA funds even if you stop working altogether. If you want, you can even change your HSA provider without changing employers.

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