Millennials, among the cohort of Americans born between 1980 and the mid-2000s, are the largest generation in the U.S. Representing one-third of the total U.S. population in 2013, most members of this generation are at the beginning of their careers and so will be a vital part of the economy in approaching decades.
Millennials are the most diverse generation to date. According to an October 2014 report issued by The Council of Economic Advisors, 42 percent identify with a race or ethnicity other than non-Hispanic white, around twice the share of the Baby Boomer generation when they were the same age.
They’re also relatively educated: The same document reports that about 61 percent of adult Millennials have attended college, whereas only 46 percent of the Baby Boomers did so.
And speaking of educated: Are you a Millennial who’s recently finished college or technical school? Are you self-employed with no access to employer-provided health insurance? For whatever reason, you may be responsible for the cost of your health care premiums, deductibles and other out-of-pocket expenses that are costlier than what you are used to.
A health savings account (HSA) is designed for individuals covered under health insurance with qualified high-deductible health plans (HDHPs) to save for medical expenses that HDHPs don’t cover. But even if your health care premiums and out-of-pocket expenses are reasonable, perhaps you should consider an HSA, for the tax savings it offers and the smart habits it may introduce.
There are medical-related expenses—from contact lenses to fertility enhancement—that even so-called “Cadillac plans” may not cover but HSA funds can pay for. Read on for 6 more reasons why HSAs make sense.
1. Your HSA contributions are tax-deductible
much like a 401(k) plan.1 In 2015, HSA contribution limits are $3,350 for an individual and $6,650 for a family. And you can reap those tax benefits in one of two ways, says IHC Specialty Benefits dba HealtheDeals Chief Marketing Officer Dave Keller. “If you work for a business that has an HSA-qualified account, you could put it away pre-tax,” he says. “Or you could put it away post-tax and take it off your income next year at tax time.” In theory, the medical plan that’s HSA-qualified is going to cost you less than it would if you did not have an HSA plan. Why? “The money that goes in the account is tax-advantaged. The money that comes out you don’t pay taxes on, as long as it’s being used for medical benefits,” Keller explains. “So if I’m in the 15 percent tax bracket, I put $100 away. I get the tax advantage for doing that. And when I pay my medical costs, there’s no taxation on that either.”
2.Unused money rolls over from year to year, so you can build up an account
Note: While there are no limits on the amount you roll over, there is, however, a per-year limit on how much you can put away.
3.Once you turn 65, you can withdraw the money and use it for non-medical purposes
“And it’s just taxed like any other qualified money would be,” Keller says. “You’ll pay taxes on it if it’s for non-medical purposes,” but it’s likely, he adds, that your income will be lower because after that age, you’ll likely be retired.
4. No HSA-qualified account offered by your employer? Open one at a local bank, or online
“Many of them will let you invest in mutual funds, once you get a certain amount of money in your account,” Keller states. “So you could grow it, just like a 401(k).”
5. On preventive care under Obamacare, there’s no cost-sharing
“If during the course of a year the only thing you have is a physical, that’s covered 100%, as long as you go to an in-network provider,” Keller says.
6.A supplemental plan like Metal Gap² may augment HSA savings
The IHC Group’s Metal Gap offers lump sum payments for covered injuries or critical illnesses. If, for example, you are 26 years old and your main concern is an accident-related injury, you can’t use HSA funds to pay the premiums on a Metal Gap policy. “But if you get hurt in an accident, you might get the (lump sum) money from your plan and use that to pay (out-of-pocket bills related to) your claim,” Keller explains. “(In other words), you can still have the qualified health plan, along with the Metal Gap plan.”
Which Medical Gap health plan is right for you?