- What Is an HSA?
- Requirements to Open an HSA
- HSA Contribution Limits
- Can HSAs Move from Job to Job?
- Are There Downsides to Health Savings Accounts?
- Interested in Opening a Health Savings Account?
Approximately 6% of American adults have $1,000 of medical debt or more. This highlights the importance of keeping a personal healthcare fund.
Now, there are a number of ways to go about maintaining such a fund. However, for many, the best option is to use a health savings account.
Now, you might be wondering: what is a health savings account? We’re going to go into that in detail below, helping you make an informed decision. Here’s everything you need to know about HSA accounts.
What Is an HSA?
An HSA is essentially a savings account that you can use for medical expenses. It enables you to save up money for medical care so that when a medical issue arises, you don’t have to pay for it out of your standard bank account.
That said, an HSA is much more than just a place to hold your money. It offers a variety of benefits that you won’t get with other types of savings accounts. We’ll discuss these benefits in detail below.
Allows for Pre-tax Contributions
One of the biggest benefits of HSA accounts is that they allow for pre-tax contributions. So, if your employer wants to, they can contribute non-taxed money to your HSA. This could either be part of your standard income or an additional benefit.
Regardless, once the money is in your HSA, it can’t be taxed. As such, it’s effectively worth more than a post-tax contribution. Over a year, these contributions add up, and make quite a positive impact on your tax return.
Allows for Tax-Free Medical-Related Withdrawals
Let’s say that you break your arm and need money to help pay for the repair of your injury. You can withdraw as much money out of your HSA as necessary without having to pay any taxes on it. This is true for any medical expense.
Note, however, that it’s not true for other expenses. If you withdraw money from your HSA to, for example, buy a car, you’ll have to pay taxes on the money that was withdrawn.
Allows Post-tax Contributions to Be Deducted from Tax Returns
Not only does an HSA allow for pre-tax contributions, but it also allows you to deduct post-tax contributions from your end-of-year tax returns. In effect, it gives you a tax break on every dollar that goes into it. Put simply, using an HSA saves you money.
Easy to Use
You might think that HSAs would be difficult to use. After all, don’t you have to withdraw money from the account before every medical-related transaction? Not at all!
Most HSAs come with debit cards attached. So, when it comes time to pay for injuries, illnesses, and even medications, you can simply swipe your card and move on.
Requirements to Open an HSA
There are a few requirements you need to meet to open an HSA. These include the following:
To open an HSA, you must be under the age of 65. This is because those 65 and older become eligible for Medicare.
HSAs are designed for those with high deductibles on their health insurance plan. High-deductible health insurance plans are plans where you have to pay a great number of out-of-pocket costs before benefits apply.
Note, though, that eligible deductible minimums are actually quite low. For individuals, the minimum deductible required is $1,500. For families, the minimum is $3,000.
Not only are there deductible requirements that must be met but out-of-pocket requirements as well. To be eligible for a health savings account, an individual’s out-of-pocket maximum must be $7,500. Families, on the other hand, must have an out-of-pocket maximum of no greater than $15,000.
HSA Contribution Limits
There are contribution limits that could restrict the amount of money you put into your HSA. In 2023, these limits sit at $3,850 for individuals and $7,750 for families. You can’t add any more than this to your HSA over the year.
Generally speaking, the contribution limit goes up a few hundred dollars each year. For instance, in 2022, the contribution limit was $3,650 for individuals and $7,300. Expect that pattern to continue into the future.
It should also be noted, however, that for those 55 years of age and older, the contribution limit is increased by $1,000. This was done to give these individuals a chance to catch up on their retirement and healthcare savings.
Can HSAs Move from Job to Job?
Put simply, yes, HSAs can move from job to job. There will be no difference in the amount of money in your account as you move from one job to the next. As such, if possible, you should make the max contribution each and every year.
Are There Downsides to Health Savings Accounts?
Like anything else, there are some potential downsides to health savings accounts. For one, as you can see above, these accounts require you to have a high-deductible health insurance plan.
High-deductible plans come with tremendous out-of-pocket costs, sometimes exceeding $10,000 a year. This is why, if they can, most individuals opt for something with a lower deductible.
In addition, there’s a financial penalty for withdrawing money from an HSA and not spending that money on medical-related costs. In particular, that penalty is 20% of the amount that was withdrawn.
If you do withdraw money for medical-related costs, you need to make sure the purchase is well-documented. If not, you could end up having to pay the above-reviewed penalty.
Interested in Opening a Health Savings Account?
What do you think? Is an HSA account right for you? Interested in opening a health savings account?
If so, we here at Custom Health Plans are the ones to see. We offer top-notch HSA accounts, the likes of which can save you substantial amounts of money on taxes.
Contact us now to discuss specifics!