Get Financial and Health Benefits with Your HSA

When reviewing your health care options, a Health Savings Account (HSA) may be a solution to help manage and pay for your medical costs. HSAs offer the unique advantage of potential tax savings benefits for you.

HSAs are tax-free accounts created exclusively for people covered by a high-deductible health plan (HDHP). Typically, a percentage of your paycheck will be deposited directly into an HSA account. The funds can accumulate there and be used for qualified medical expenses such as doctor visits, prescriptions, dental check ups and more.

Are You Eligible for an HSA?

To qualify, you must be enrolled in an HDHP either through your employer or one that you’ve purchased on your own. In addition, you:

• Must have a valid Social Security Number and have your primary residence in the U.S.
• Cannot be claimed as a dependent on another person’s tax return (except spouses)
• Cannot be covered by any other type of health plan, including Medicare

The money you put into the account is not subject to federal income tax at the time of deposit. Unlike a flexible spending account (FSA), HSA funds roll over and accumulate year to year if they are not spent. HSAs are owned by the individual, so the account “follows” you, regardless of your employer.

What can your HSA pay for?

HSA funds may be used to pay for qualified medical expenses at any time without federal tax liability or penalty. These include:

• Medical expenses before and after you meet your health plan deductible
• Dental care
• Vision care
• Prescriptions
• Over-the-counter medications prescribed by your doctor
• Certain medical equipment

What does an HSA do for me?

The initial savings comes from the lower premium on your health insurance. Your HDHP premium is typically less than traditional health insurance because the insurance company no longer pays for routine healthcare, which you cover with your HSA.

Additional benefits you can enjoy:

1. HSAs are “triple-tax-free”

HSAs mean triple tax benefits — contributions are tax-free, your money grows tax-free, and withdrawals are taken tax-free, provided they’re used to cover qualified medical expenses.

2. HSAs don’t have required minimum distributions

Unlike some funds, HSAs don’t impose required minimum distributions (RMDs), so if you don’t have an immediate need for the money, your balance can be left to grow for larger expenses that may occur.

3. HSAs can be funded by employers, too

Many employers match employee contributions to varying degrees, adding money directly to your account (though employer contributions do count toward the annual limit).

4. HSAs don’t need to be used up from year to year

With an FSA, you generally can’t carry over unused funds once your plan year expires. HSAs, on the other hand, don’t have to be used up on a yearly basis. In fact, the purpose of an HSA is to invest your money so that once you retire, you’ll be sitting on a hefty balance to meet potential medical needs.

5. No income limits associated with HSAs

As long as you stay within the annual contribution limits, you’re eligible to participate in an HSA regardless of your income level.

Overall, HSAs are designed to encourage consumers of all backgrounds to manage healthcare costs and obtain more preventative care. If you’re worried about affording healthcare in retirement, start looking into an HSA. In addition to flexibility, it offers many financial benefits that can pay off in the long run.