This account helps you save money for medical expenses

Thomas Dowling |

I am sure I do not need to tell you that health-care costs are a major expense these days. Even though my wife and I are healthy, we have two active boys, and they get sick or hurt from time to time.

It is inevitable. Additionally, I am not getting any younger, and as I age, I may need more medical care. You might not want to believe it, but you may also be faced with more medical costs as you age.

A health saving account (HSA) is a tax-advantaged account that is used to pay for current and future health-care expenses.


This is one savings vehicle that can be tax-free if the funds are used for qualified medical expenses. You contribute the funds pretax; the money can grow tax-deferred and then you are not taxed when you withdraw the funds for a qualified medical expense.

Qualified medical expenses, as designated by the IRS, include items such as deductibles, copayments, coinsurance, X-rays, eyeglasses, medicines, hospital services, etc. A more extensive list can be found at HSACenter’s website.

Remember, these expenses are designated by the IRS and can be subject to change. Here is how it works: You set up this account at a financial institution (I have mine at Coastal States Bank) either individually or joint with your spouse. You deposit the funds into the account like any other checking account. Depending upon the financial institution the funds can be invested in a variety of investments such as stocks, bonds, or just hold it on cash.

In order to qualify for an HSA, you need to be enrolled in a high-deductible health insurance plan (HDHP). The IRS defines a high-deductible plan as one that has a deductible of at least $1,400 for an individual or $2,800 for a family.

For 2020, you can contribute $3,550 for an individual and $7,100 for a family into an HSA. If you are 55 years of age or older, then you can contribute $4,500 for an individual and $9,000 for a family. Contributions can be made during the calendar year and up to the April 15 tax-filing day the following year. Read more about contribution limits here. If you are under age 65 and withdraw funds from your HSA for non-qualified medical expenses, then you will be assessed a 20% penalty and taxed at your income rate.

If you are over age 65 and you withdraw funds form the HSA for non-qualified medical expenses, then you will not be assessed a penalty; you will simply pay the taxes due on the amount withdrawn. Therefore, after you turn 65, this account can also be used in a similar way as a retirement account since it is taxed the same as a traditional IRA if you do not use the funds for medical expenses.

If you pay taxes and have medical expenses now or believe you will have medical expenses in the future (we all will) then you should consider setting up an HSA account.

As you can see, a health savings account can be one of the few tax-free accounts you have.

I believe more people do not utilize them because of lack of familiarity. Hopefully, we can help change that.

Thomas M. Dowling CFA, CFP®, CIMA® is an Executive Managing Director with Aegis Capital Corp.. Thomas has been featured in various publications and has been a guest speaker at various financial events. Locally, he is a member of the Rotary and sits on the Board of Directors of the Hilton Head Baseball Association, Hilton Head Boys and Girls Club and the Town of Hilton Head Parks and Recreation Commission. He can be contacted at or 843.715.2239

Mr. Dowling is a Registered Representative and Investment Adviser Representative of and offers securities products and investment advisory services through Alliance Global Partners Member FINRA/SIPC. The opinions expressed are for information purposes only and is not an offer, recommendation, or solicitation of any product, strategy, or transaction. Any views, strategies or products discussed may not be appropriate or suitable and may be subject to risk.