Health Savings Account (HSA)
HSAs are one of the most underutilized benefits available to American taxpayers. With an HSA, you can make tax-free contributions to a special account to cover qualified medical expenses. But even if you don’t have any current health expenses, there are many good reasons to open an HSA. The catch? To be eligible to open an HSA, you must have a high-deductible plan.
Why were health savings accounts created?
High-deductible health plans are a great way to control your healthcare spending. Health savings accounts (HSAs) allow you to set aside money for certain medical services on a pre-tax basis. HSAs are linked with high deductible health plans, which require plan enrollees to pay out of pocket until their deductibles are met. They can use HSA funds towards out-of-network care or emergency visits that do not require an insurance claim, since it’s considered “qualified.”
Is a health savings account right for me?
HSAs have many advantages and disadvantages. If you’re generally healthy or planning your retirement, they may be the perfect option for your needs. HSA’s may be for you as funds can go towards offsetting medical expenses in advance instead of having them come out of savings later on when it’s much harder to afford due to financial constraints.
However, if you anticipate expensive medical care in the next year, have pre-existing conditions, or find it hard to meet the high deductible, an HSA and high-deductible plan may not be the right choice for you.
What are some potential advantages of health savings accounts?
- You control the amount you put away for future health care costs.
- You manage how your HSA money is disbursed.
- HSA’s allow you to shop around for the best care and cost.
- Your employer may contribute to your HSA, but you are the sole owner and can keep the money even if you switch careers.
- Any unused money rolls over to the following year.
- You don’t pay taxes on any contributions to your HSA.
- Depending on the HSA you choose, they may pay interest on unused cash in your account. Some even allow you to invest the funds in mutual funds or other financial products!
- Earnings from your HSA are tax-free.
What are some potential disadvantages to health savings accounts?
- Illness can be unexpected.
- Information may be complex for you to find for your type of care.
- Some find putting money aside for their health challenging.
- Pressure to save may make you wary of spending on health issues.
- You pay taxes on any money taken out of your HSA if it is not health-related.
How much money can I deposit annually into a health savings account?
For 2022, IRS contribution limits for HSAs are $3,650 for employee-only coverage and $7,300 for family coverage (employee + one or more).
Are health savings accounts similar to flexible spending accounts (FSAs)?
They are similar but have pretty essential distinctions you should be aware of:
- While an HSA will allow you to roll over the entire unspent amount, an FSA will only allow a rollover of $550 max if your employer chooses to offer this option to you.
- Unlike an HSA, you cannot take money from an employer-sponsored FSA when you change jobs or retire.
- You typically cannot have an HSA and an FSA simultaneously.
Can I withdraw money from my health savings account for non-medical expenses?
If you choose to withdraw from your HSA account for non-medical expenses before you turn 65, you will pay income tax on the money withdrawn, along with a 20% penalty. If you are over 65, you will not have to pay the penalty, but you will pay taxes on the funds withdrawn.
Save Money and Save on Taxes
Your HSA is a tax-advantaged savings account that provides tax-free income for your qualified medical expenses.
You Don’t Lose It If You Don’t Use It
The money in your HSA is yours to use when it counts, no matter what. You can change jobs or move off a qualifying high deductible health plan without any consequences on the funds already there for you!
Your Family Can Be Covered
As long as they are claimed on your taxes, you can use your HSA to pay for qualified medical expenses. This even includes single coverage enrollment.
Long Term Coverage
Unlike a 401(k), you rest assured that HSA funds for qualified medical expenses are always 100% income-tax-free.
Plan For Retirement
You can use your HSA for anything after turning 65. You’ll pay ordinary income tax on those funds, but there is no longer a 20% penalty for not having a qualified healthcare expense.
Learn more about an HSA
Still not sure if an HSA is right for you? Give us a call, and we’ll find the best health insurance coverage that suits your needs and budget!