
Dave Ramsey's approach to health savings accounts (HSAs) is all about using them as a long-term savings tool.
You can contribute up to $3,500 to an HSA if you have a high-deductible health plan.
HSAs are triple-tax-advantaged, meaning contributions, earnings, and withdrawals are all tax-free.
By using an HSA, you can save for medical expenses in the short-term, but also for retirement in the long-term.
Dave Ramsey recommends funding your HSA before you fund your emergency fund.
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What is an HSA?
A health savings account, or HSA, is a powerful tool for managing healthcare expenses. You can use it to pay for qualified out-of-pocket costs including deductibles and copays.
Eligible expenses are quite broad, covering everything from Medicare premiums to long-term care costs. This means you can use your HSA to cover a wide range of healthcare expenses, including dental and vision expenses for yourself, your spouse, or eligible dependents.
With an HSA, you have more control over your healthcare dollars and can make smart financial decisions about how to use them.
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How HSA Works

You can open an HSA account at any bank, credit union, or insurance company that offers one. Or, you can open it directly through your employer if they offer it.
To make contributions, you can use payroll deductions, just like a 401k. However, if you live in New Jersey or California, these contributions will be taxed for state income tax purposes.
The amount you can contribute each year is determined by government-mandated limits. For 2024, the limit is $4,150 for an individual and $8,300 for family coverage.
Those age 55 or older can contribute an extra $1,000 above these thresholds, known as a “catch-up contribution.” This can be a big help for those nearing retirement.
You can fund the account through a deposit, transfer, or payroll deduction. And, you can access funds using a debit card or checks to pay for qualified out-of-pocket healthcare expenses.
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Eligibility and Requirements
To qualify for a Health Savings Account (HSA), you'll need to meet some basic requirements. You must be enrolled in a qualified High-Deductible Health Plan (HDHP).

For 2022 and 2023, the minimum deductible for an individual is $1,400 and $1,500 respectively, while the minimum deductible for a family is $2,800 and $3,000 respectively. The maximum annual out-of-pocket expense for individuals is $7,050 and $7,500, while for families it's $14,100 and $15,000.
You'll also need to be at least 18 years old and not claimed as a dependent on someone else's tax return. This means you're independent and can take care of your own health expenses.
Here's a breakdown of the eligibility requirements for HSAs in 2022 and 2023:
These requirements are in place to ensure you're taking care of your health expenses and not relying on someone else to cover them.
Tax Benefits
With a Health Savings Account (HSA) like the one recommended by Dave Ramsey, you'll enjoy some amazing tax benefits.
You can contribute to your HSA with tax-free money, which means your employer can drop funds into your account before taxes are taken out, or you can claim the contributions as tax deductions on your taxes.

Contributing pretax through payroll deductions is a great way to save money, as it reduces your taxable income.
If you're self-employed, you can also contribute pretax, and it won't count toward your taxable income.
New Jersey and California residents, however, will still have to pay state income tax on their HSA contributions.
Your HSA contributions can grow tax-free over time, just like a regular savings account, but without the tax hit on the interest earned.
As long as you use the money for qualified medical expenses, you can withdraw it tax-free from your HSA.
Once you turn 65, your HSA will also act like a traditional IRA, allowing you to withdraw funds for any reason, although you'll pay taxes on those funds when you do.
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FSA vs HSA
A Flexible Spending Account (FSA) allows you to set aside pre-tax dollars for medical expenses, but it's limited to $2,750 per year.
FSAs are often offered by employers, and you can only use the funds for qualified medical expenses.
You can't roll over unused FSA funds to the next year, but you can carry over up to $550.
Health Savings Accounts (HSAs) are similar to FSAs, but they're specifically designed for people with high-deductible health plans.
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Tax Differences for FSAs

FSAs are subject to a "use it or lose it" rule, meaning you'll forfeit any unused funds at the end of the year.
You can set aside a certain amount of money each year, up to a certain limit, to cover medical expenses.
FSA Funds Expire
FSA funds have an expiration date, literally. They're "use it or lose it", meaning any unused funds at the end of the year are gone for good.
You might be able to roll over $610, but that's the maximum allowed if your employer provides that option.
Opening and Managing an HSA
To open an HSA, you'll need to choose a custodian, such as a bank or insurance company, to hold your account.
You can open an HSA through a bank, insurance company, or a specialized HSA administrator, and some employers even offer HSAs as a benefit.
The IRS requires that you have a high-deductible health plan (HDHP) to be eligible for an HSA, which means your annual deductible must be at least $1,400 for individual coverage or $2,800 for family coverage.

HSAs are triple-tax-advantaged, meaning contributions, earnings, and withdrawals for qualified medical expenses are tax-free.
You can contribute up to $3,550 to an HSA for individual coverage or $7,100 for family coverage in 2022, with catch-up contributions allowed for those 55 or older.
To manage your HSA, you'll need to keep track of your contributions, expenses, and account balance, and some custodians offer online tools to help you stay organized.
HSAs are portable, meaning you can take your account with you if you change jobs or retire.
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Planning for Healthcare Costs
Planning for Healthcare Costs is crucial, especially with rising expenses. You can increase your contributions to your HSA or other tax-advantaged accounts to save for future medical care and premiums.
It's essential to decide ahead of time where you'll go for medical problems, rather than making split-second decisions that can be costly. If you're headed to an urgent care, call ahead to ensure they provide the necessary technology for your needs.
Fill up your HSA, as the money grows tax-free and can be used to pay for medical care and premiums later.
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Check Your Insurance Coverage

Reviewing your health insurance coverage is crucial to ensure you're not over or underpaying for your plan. You might be surprised to find that you're not using your current plan as much as you thought.
If you're young and healthy, a high-deductible health plan (HDHP) might be a good option. These plans have high deductibles, but low monthly premiums, which can save you money if you don't use your insurance often.
HDHPs pair well with Health Savings Accounts (HSAs), offering huge tax savings. This can be a game-changer for those who don't need to use their insurance frequently.
On the other hand, if you're using your insurance a lot due to age or health problems, a low-deductible health plan might be more suitable. These plans, such as preferred provider organizations (PPOs), health maintenance organizations (HMOs), and point-of-service (POS) plans, have lower deductibles but higher monthly premiums.
You can compare your plan with other options to decide if it's worth switching. An independent health insurance agent can help you navigate the process.
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Plan Ahead for Healthcare Costs

Planning ahead for healthcare costs can be a lifesaver, especially as we age and our health needs increase. You can start by reviewing your health insurance coverage and making sure you're not over or under-insured. Under-insurance can lead to financial ruin, while over-insurance can mean you're paying for more than you need.
To save on healthcare costs, consider opening a Health Savings Account (HSA) to store pre-tax dollars for medical expenses. As of 2024, the annual contribution limit for an individual is $4,150 and $8,300 for family coverage, with a catch-up contribution of $1,000 for those 55 or older. This way, you can use the funds tax-free for qualified out-of-pocket expenses.
You can also use your HSA funds to pay for qualified expenses, such as Band-Aids, body scans, midwives, and motion sickness medication. However, not everyone is eligible for an HSA, so be sure to check the basic criteria first.
To make the most of your HSA, consider increasing your contributions to take advantage of the tax benefits. You can also use the funds in your account indefinitely until you use them, which can be a huge relief in the long run.
For another approach, see: Health Saving Account Contribution Limit 2017
When to Contribute to an IRA

You can start putting money into an IRA once you reach Baby Step 4, which means you're ready to start investing for retirement.
The key is to be able to work those contributions into your monthly budget, so make sure you have a solid plan in place.
If you're still getting out of debt and don't have a fully funded emergency fund, it's not the time to add money to an IRA, just like with an HSA.
The exceptions to this rule are the same as with an HSA: if you're about to have a baby, major surgery, or know you're going to have some large medical expenses soon, or if you don't have dental or vision insurance.
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HSAs Have 2 Components
Dave Ramsey advises that a Health Savings Account (HSA) has two main components: the insurance component and the savings component.
You don't have to participate in the savings component, which is meant for long-term savings for medical expenses.

The insurance component is a large deductible, 100 percent coverage after the deductible, and cheaper-premium health insurance plan.
If you're in debt, Dave Ramsey recommends only doing the insurance component or a medical sharing program.
Funding a savings account of several thousand dollars for medical expenses when you're not on Baby Step 3 is not a priority.
You should focus on paying off debt first, as that money could be used to pay off debt instead of being saved for medical expenses.
Not funding the HSA portion of your current insurance plan isn't the end of the world, and you'll only lose out on the tax deduction associated with an HSA.
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Frequently Asked Questions
What is the downside of having an HSA?
HSAs may come with downsides, including low interest rates, fees, and limited investment options, which can impact your savings and returns
Who has the best HSA account?
For the best HSA account, consider Lively for accessibility, Fidelity Investments for investment options, or Bank of America for a traditional bank option. Each offers unique benefits, so it's worth exploring which one suits your needs.
What does Dave Ramsey say about savings accounts?
Dave Ramsey advises against putting money in savings accounts, suggesting instead that you invest and own your money to build wealth. He believes that relying on banks and savings accounts can be a loan to the bank, rather than a smart investment for your future.
Sources
- https://www.ramseysolutions.com/insurance/hsa-tax-benefits
- https://www.ramseysolutions.com/insurance/how-to-save-money-on-health-insurance
- https://www.visionretirement.com/articles/how-a-health-savings-account-can-help-you-save-for-retirement
- https://www.knoxnews.com/story/entertainment/columnists/dave-ramsey/2019/02/23/dave-ramsey-health-savings-accounts-have-2-components/2915640002/
- https://www.zanderins.com/dave-ramsey-recommends
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