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Published on: 03/31/2024 • 6 min read

How Are Health and Savings Related?

Almost all pre- and post-retirees will at some point find themselves preoccupied with two things: their health and their savings. We all know that your health and your savings are two crucial aspects of a well-rounded and secure life, but how are health and savings related? 

Without a well-protected nest egg, your health care needs may potentially be unaccounted for in your finances. During health emergencies, you may find yourself depending even more on those savings. The complex relationship between these two essential elements can be boiled down to a simple statement: without one, you may put the other in danger. 

You may have heard that there is a significant connection between your health and wealth management (and referenced that 87% of people who have assistance with their finances in the form of financial advisors report feeling happier and getting better sleep) but we’re here to take it a step further. 

In this article, we will go over how you can improve both your health and your savings by using tools like Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA) — and how working with a trusted financial advisor can help keep you on track for the healthy and prosperous retirement that you deserve. 

How do health savings work?

The practice of building up health savings is all about finding the most efficient ways in which you can put money away to maintain your health. The idea is to proactively plan for the eventuality of healthcare costs, not just react to health issues as they appear, which should reduce the financial strain and the emotional burden of unexpected medical needs. 

Your health savings could take on many forms, but one of the most important and ubiquitous tools for building health savings is the Health Savings Account (HSA). 

What’s a Health Savings Account?

A Health Savings Account (HSA) is a tax-advantaged savings account specifically designed to help you save for medical expenses. It offers a unique combination of a high-deductible health insurance plan and a savings account that allows you to set aside money on a pre-tax basis.

According to the IRS, to be eligible for an HSA you must meet the following requirements:

  • You are covered under a high-deductible health plan (HDHP)
  • You have no other health coverage
  • You are not enrolled in Medicare
  • You are not eligible to be claimed as a dependant on someone else’s tax return

Some of the major benefits of having an HSA include the fact that the funds deposited into an HSA are not subject to federal income tax at the time of deposit. Additionally, any interest or investment earnings on the HSA balance are tax-free, provided the funds are used for qualified medical expenses. 

This triple-tax advantage (tax-free contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses) makes an HSA a very powerful tool in the retirement tax strategies toolbox of those looking to plan their retirement and save on healthcare costs.

What are the Health Savings Account rules?

HSAs come with their fair share of rules, but most of them are in place to benefit their account holders. Some of the most important Health Savings Accounts rules are as follows:

  1. Eligibility criteria: as discussed, in addition to not having Medicare or any other health coverage, your current health insurance coverage must be classified as a high-deductible health plan. What qualifies as an HDHP changes depending on existing laws, but as of 2024, your coverage may qualify if your minimum annual deductible is $1,600 ($8,050 out-of-pocket cap) for individual coverage, or $3,200 ($16,100 out-of-pocket cap) for family coverage. 
  2. Contribution limits: HSA contribution limits, as of 2024, are $4,150 for individuals and $8,300 for families. 
  3. Tax advantages: Contributions made to an HSA are tax-free, grow tax-free, and withdrawals are tax-free if used for qualified medical expenses. 
  4. Qualified medical expenses: HSAs are intended for use only on qualified medical expenses. These can include a wide range of healthcare services and products, including doctor visits, prescription medications, dental and vision care, and certain over-the-counter items. 
  5. Rollover and portability: HSAs offer account owners two important types of flexibility. Account holders can rollover unused balances from one year to the next, as well as the ability to transfer HSA funds from one provider to another. 

Can I open a Health Savings Account on my own?

In other words, can you open a health savings account even if your employer doesn’t offer one? If you meet all of the eligibility criteria, yes! Qualified individuals can open up a Health Savings Account either through their employer or independently, and opening one independently can even give you more control. 

If you have questions about opening a Health Savings Account on your own, you should make sure to work with a trusted financial advisor who offers financial planning for high-net-worth individuals and can make sure that you’re getting the most out of your HSA as well as utilizing other powerful retirement savings tools. 

Continue reading: Where is the safest place to put your retirement money?

HSA vs FSA: which is for me?

Similarly to an HSA, Flexible Spending Accounts (FSAs) are also accounts that you put money into to pay for out-of-pocket healthcare expenses, but with some key differences.

  • You must spend the entire balance of your FSA before the end of the year (with few exceptions) while HSAs allow you to carry over unused funds. 
  • You can invest the money in your HSA, which means an increased possibility of growth. 
  • FSAs are strictly employee benefits, while eligibility for HSAs depends on your insurance coverage. 
  • Your HSA funds belong to you, while FSA funds are technically owned by your employer. 

It is important to note that if you are contributing to an HSA, you cannot fund an FSA during the same year, with the exception of a limited purpose FSA, or LPFSA, which only covers expenses not covered by your health plan. 

Improve your health and savings by being prepared for the future

So, how are health and savings related? They are both crucial factors of life that can support or detract from one another. With a bit of strategic planning, you can make sure that your savings reinforce your health, and that the two are in harmony with the rest of your retirement and tax plans.

If you’re looking to open an HSA independently or would like to verify that you’re on track for the retirement that you’ve always wanted, call the high-net-worth retirement planners at Avidian Wealth Solutions. We can help you work out a retirement plan that connects your current financial circumstances with the future you’ve always envisioned, to help you make sure your health and your savings are planned for in the long run. 

Looking for retirement planning in Houston, Austin, Sugar Land, or The Woodlands?Schedule a conversation with one of our advisors today and start giving your health and your savings the attention that they deserve. 

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