The Value of Health Savings Accounts (HSA's)
What is a Health Savings Account?
A Health Savings Account (HSA) is like a 401(k) for healthcare. HSAs are tax-advantaged accounts that can accumulate interest and earn investment returns. The funds can be used to pay for qualified medical expenses today or can be saved for future expenses. It is owned by you, is 100% vested from day one, and lets you build up savings for future needs.
Triple tax savings Contributions are not taxable to you, and investment growth is not taxed while it is in the account. Distributions are not taxable as long as they are spent on eligible healthcare expenses incurred after the HSA was established.
Interest and investments Your HSA balance may earn interest each month, and once you meet the minimum balance, you will have the option to invest in nationally recognized mutual fund families.
Annual HSA contribution limits are set by the IRS.
Multiple uses Hundreds of eligible healthcare expenses may be paid for with HSA funds, including prescriptions, over-the-counter medications with a prescription, doctor office co-pays, health insurance deductibles, and coinsurance. Funds may even be used for qualified expenses for your spouse or dependents.
Take it with you Because your HSA is owned by you, even if you change health plans or later become ineligible to make contributions, your account stays with you. You can even use your account for retirement expenses when you reach 65.
Easy to access Funds in the account are easily accessed with the healthcare payment card. Or, you can submit withdrawal requests online when using the card is not convenient.
Catch-Up Contributions Individuals ages 55 or older (and not yet enrolled in Medicare) can make additional “catch-up” contributions of up to $1,000 per person.
Qualified expenses are listed in IRS Publication 502.
HSA Rules & Regulations
• To be eligible to open and contribute to an HSA, you must be covered by a qualified High Deductible Health Plan (HDHP).
• HSA funds may be used for any eligible healthcare expense not covered by insurance or any other plan for yourself, your spouse, or tax dependents.
• HSA funds can be withdrawn for non-healthcare items, but will be subject to regular income taxes and a 20% excise tax penalty.
• For 2020, contributions may not exceed $3,550 for individual coverage or $7,100 for family coverage.
• Consult your tax advisor for more information.
The IRS may request itemized receipts for HSA purchases during tax time.
Always save your itemized receipts!
HSA Enrollment Eligibility
Most taxpayers are eligible for an HSA. However, you are ineligible for an HSA if:
• You can be claimed as a tax dependent on another person’s taxes. Generally, this excludes children under age 19 (or 24 for students), or other household members with limited income who are supported by the taxpayer.
• You are enrolled in Medicare. • You are covered by your own or a spouse’s non-HSA-qualified health plan, Flexible Spending Account (FSA), or Health Reimbursement Arrangement (HRA).
• You received any Veteran’s Administration health benefits in the last three months.