If you have heard the term Health Savings Account (or HSA) thrown around and found yourself curious about how this type of account works and if it is right for you, you have come to the right place! A Health Savings Account (HSA) is a special purpose savings account that enables individuals participating in a High Deductible Health Plan (HDHP) to pay for qualifying health care expenses with pre-tax funds. In other words, you set aside pre-taxed money to pay for qualified medical expenses.
How does a Health Savings Account work?
Contributions to your HSA are made with pre-tax dollars, which reduces your taxable income. For 2022, if you have an HDHP, you can contribute up to $3,650 for self-only coverage and up to $7,300 for family coverage into an HSA. Funds in your account can be used to pay for IRS-qualified medical expenses such as deductibles, co-insurance, prescriptions, vision, and dental care. Most plans come with a debit card that you can use to pay for qualified expenses. You can also pay out-of-pocket and reimburse yourself later with HSA funds. You will need to save your receipts for tax purposes.
What are the benefits of a Health Savings Account?
By choosing an HDHP/HSA combination, money that would otherwise be lost to high premiums is now able to be invested in a tax-free, interest-bearing HSA. Unlike some other medical expense accounts, HSA funds roll over year to year if you don’t spend them. An HSA may earn interest or other earnings, which are not taxable. HSA funds can be used to pay for qualified medical expenses at any time without federal tax liability. If you withdraw money from an HSA fund for anything other than qualified medical expenses, you have to pay taxes and a 20 percent penalty. But at 65 the penalty goes away, giving you additional retirement savings similar to a Roth IRA. After 65, you will only pay taxes on nonmedical withdrawals.
Who can open a Health Savings Account?
While you can use the funds in an HSA at any time to pay for qualified medical expenses, you can only open and contribute to an HSA if you have a High Deductible Health Plan. A HDHP features higher deductibles and lower premiums than traditional insurance plans. For plans that are “HSA-eligible” the minimum deductible for an HDHP is $1,400 for an individual and $2,800 for a family in 2022. You can use this health plan comparison calculator to determine if an HSA is right for you.
To learn more about Health Savings Accounts and to determine if this option is right for you, visit: https://www.hsabank.com/hsabank/Learning-Center/Health-Savings-Accounts or contact one of our knowledgeable advisors today.