Flu season is in full swing, and this year’s activity is particularly high in the U.S. While many families are acutely aware of critical health check points like safeguarding against the flu, they often forget to conduct some elements of their financial wellness routine.

One example is neglecting to use your Health Savings Account (HSA).  We have observed an increase in the availability of HSAs over the past decade.  These accounts allow employees enrolled in high deductible health plans to use tax-free dollars to pay for out of pocket healthcare expenses for themselves and family members.

Contributing to an HSA carries a rare triple tax advantage:

  1. Contributions made to your HSA account reduce your taxable income.
  2. Growth of the assets is tax-deferred (and tax free if used for qualified health expenses).
  3. All withdrawals from the account are tax free if used for eligible healthcare expenses, as well.

HSA owners have some important decisions to make.  Some families use their HSA funds to cover immediate medical expenses.  Going this route can help the family better manage their cash flow.

Another option is to let your HSA contributions grow tax free and eventually fund a supplemental nest egg to cover future (retirement) health care expenses.  After age 65, these funds can be used for non-healthcare distributions without penalty.  Investors are only taxed on the distributions (like a traditional IRA) and there are no required minimum distributions.

Choosing whether to use your HSA funds pre- or post-retirement depends on your unique circumstances and is something you should talk to your advisor about in the context of your overall financial picture.