A health savings account (HSA) is a personal savings account funded to help you save for current or future medical expenses. There are many advantages to putting money into these accounts, including favorable tax treatment of contributions, interest/investment growth, and use of the funds.
Any adult can have an HSA if:
Contributions to your HSA can be made by you, your employer or both. However, the total contributions are limited annually. If you make a contribution, you can deduct the contributions (even if you do not itemize deductions) when completing your federal income tax return. Alternatively, some employers will allow you to make your HSA contributions as tax-free salary reductions.
Contributions to the account must stop once you are enrolled in Medicare or lose access to your HSA-qualified, high deductible health plan. However, you can still use your HSA funds to pay for medical expenses tax-free.
You must have coverage under an HSA-qualified high deductible health plan to open and contribute to an HSA. Generally, this plan will not cover first-dollar medical expenses, and must have a deductible of at least:
In general, the deductible must apply to all medical expenses (including prescriptions) covered by the plan. However, plans can pay for preventive care services on a first-dollar basis. Preventive care can include routine prenatal and well-child care, child and adult immunizations, annual physicals, mammograms and more.
You can make a contribution to your HSA each year that you are eligible. You can contribute no more than:
Individuals ages 55 and older can also make additional “catch-up” contributions of up to an additional $1,000 annually.
Your eligibility to contribute to an HSA is determined by the effective date of your HDHP coverage. Individuals who are eligible to contribute to an HSA in the last month of the taxable year are allowed to contribute an amount equal to the annual HSA contribution amount provided they
remained covered by the HSA-eligible health plan for at least the 12-month period following that year. Contributions can be made as late as April 15 of the following year.
You can use money in your HSA to pay for any qualified medical expense permitted under federal tax law. This includes most medical care and services, dental and vision care.
Generally, you cannot use your HSA to pay for medical insurance premiums, except specific instances, including:
You can use your HSA to pay for medical expenses for yourself, your spouse or your dependent children, even if your dependents are not covered by your HDHP. Any HSA dollars used for purposes other than to pay for qualified medical expenses are taxable as income and subject to an additional 20% penalty. Examples include:
After you turn 65, the 20% additional tax penalty no longer applies so if you want to take the money out for a non-qualified medical expense; you will simply pay income tax on the funds withdrawn. If you become disabled and/or enroll in Medicare, the account can be used for other purposes without paying the additional penalty.
1. Security – Your HSA can provide a buffer for unexpected medical bills.
2. Affordability – In most cases, you can lower your health insurance premiums by switching to health insurance coverage with a higher deductible.
3. Flexibility – You can use your HSA to pay for current medical expenses, including expenses that your insurance may not cover, or save your funds for future needs, such as:
4. Savings – You can save the money in your HSA for future medical expenses and grow your account through investment earnings. All interest or investment earnings inside the account grow tax-free.
5. Control – You make the decisions regarding:
6. Portability – Accounts are completely portable, meaning you can keep your HSA even if you:
7. Ownership – Funds remain in the account from year to year, just like an IRA. There are no “use it or lose it” rules for HSAs.
8. Tax Savings – An HSA provides you triple tax savings:
Banks, credit unions, insurance companies and other financial institutions are permitted to be trustees or custodians of these accounts. Other financial institutions that handle IRAs are also automatically qualified to establish HSAs.
Now that you know the basics, you may be wondering how you, as an individual, or your employees can open an HSA. Our agency has a highly-qualified team of agents available to answer any questions. Reach us at 330-339-6413 or by submitting your info through the “Get a Quote” button below.
Chartered Property and Casualty Underwriter
Chris began his insurance career working in the claims department for a major property and casualty insurance carrier.
Bachelor’s Degree: Finance and Business Law, Miami University
Chris joined the agency in 2017. He resides in New Philadelphia with his wife, Jessie, and two daughters: Adelynn and Harper.