How to Optimize Your HSA as a Freelancer

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How to Optimize Your Health Savings Account as a Freelancer

Over 57 million Americans do some form of freelance, contract, or self-employed work, either on the side or as their full-time gig. The shaky job economy we’ve witnessed due to COVID-19 this year has also led to an increase in people choosing to work for themselves. With that comes the challenge of getting healthcare since most people get employer-sponsored health insurance. But that’s no reason not to take your career into your own hands. There are tools like an HSA to support you through any career choice you make, and it is essential to the self-employed. 

Before we get started, let’s have a refresher on what exactly is an  HSA. 

A Health Savings Account (HSA) is a triple-tax advantaged savings vehicle that comes with a high-deductible health plan (HDHP). HDHPs have lower premiums and higher deductibles (hence the name), so HSAs were introduced with them to help combat higher out-of-pocket costs. With all of the tax advantages and flexibility, they’re an ideal savings vehicle for freelancers.

Don’t be scared of an HDHP; it’s your ticket to an HSA.

We get it – the words “high deductible” can be a little scary, but stay with us! Not only does an HDHP cost less per month, but you also get an HSA to take care of out-of-pocket costs. It’s crucial to save wherever you can as freelancers, so choosing an HDHP is a great way to spend less and still have good healthcare. Plus, as soon as you become HSA eligible, the door to lowering your taxable income is wide open, which is a freelancer’s dream!

Set contribution goals to make the most of your HSA’s benefits

One of the best perks of your HSA is tax-free contributions. Every time you, or someone else, contributes to your HSA, it goes in totally tax-free. For 2021, the contribution limits are $3,600 for individuals and $7,200 for families. So if you’re contributing to your HSA as an individual, set a goal to contribute $300 every month to max it out by the end of the plan year. By that point, there’s a good chance you’ve saved enough to cover your deductible and not worry about more money coming out of your wallet. 

Understand your yearly healthcare expenses.

The key to planning your finances as a freelancer is having a full understanding of costs you’ll be taking on, and healthcare should be a part of that plan! How much are your monthly premiums? What doctor’s appointments do you know you’ll have this year? What prescription medications are you taking? Are there other expenses like dentist visits or prescription glasses in your future? Add it all up and write it down! If you cannot max out your HSA, at least plan to set aside enough to cover what you know you’ll need. 

Consider investing your HSA.

One of the most unique and valuable perks of an HSA is the ability to invest. You can invest HSA dollars pre-tax, and any gains you receive come back tax-free. If you’re in the financial position to take a portion of your healthcare costs out-of-pocket, it could be incredibly beneficial to invest in stocks, mutual funds, or ETFs, depending on how much risk you’re willing to take on. 

Use your HSA as a retirement vehicle.

One of the less ideal parts of being self-employed is the lack of a traditional 401(k). But have no fear, your HSA is here! When you turn 65, your HSA becomes a conventional retirement account that can be used on anything. After all those years of late nights and working on weekends, your HSA can facilitate your dream vacation or help you purchase your dream home. And while your money has been sitting in that account, it’s been growing tax-free, too! Who needs a real employer when you’ve got yourself and an HSA? 

Now that you know all there is to know about HSA’s, what are the things you should keep in mind for the future?

  • HDHP + HSA = Lower monthly premium. Save money right out of the gate when you get your ticket to an HSA.
  • Lower your taxable income with every contribution you make. Like we said, a freelancer’s dream.
  • It’s like a 401(k), but better. Your HSA has way more flexibility between now and retirement.
  • It’s forever yours. Just like your career, your HSA belongs to you and no one else. Take it with you on every self-employed journey you go on!

Well, there you have it. Use an HSA to be prepared for now while planning for the future. If you want to learn more about how an HSA can stick with you through all career changes, read this ultimate guide from First Dollar

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