What is an HSA? Put simply, an HSA is a type of health insurance policy that allows you to open and deposit money in to a savings account at the bank of your choice. There are two components to an HSA:
- High Deductible Health Plan – plans labeled as an HSA or High Deductible Health Plan (HDHP) by the health insurance carrier are considered qualified plans. HSA plans are similar to any other health insurance plan with one distinguishing feature…there are no “first dollar”/copay benefits allowed until you have met your full The only exception is Wellness/Preventive Care which is covered at 100% on ALL ACA-compliant health plans.
- Health Savings Account – when you are insured on an HSA qualified plan you may open up a bank account in your name at any bank offering HSA accounts. Every dollar you put in to your Health Savings Account reduces your taxable income for that calendar year by the same amount. The maximum deposit is determined by the IRS and varies by year and enrollment status. Click HERE to see the maximum contributions for this year.
The money you deposit in your HSA account is always yours and can accumulate tax-free indefinitely – you are not required to use it by the end of the year.
Money deposited in your Health Savings Account can be withdrawn penalty-free in two ways 1) As a payment to you or a provider for IRS approved medical, dental, and vision expenses for you or any of your tax dependents (even if they are not covered on the HSA plan). These withdrawals are not treated as income and are not subject to income taxes; or 2) At age 65 you may withdraw the money for any reason. If the funds are used for non-IRS approved expenses the money is simply treated as income for that year.
- How can the HSA help me save money? An HSA account can help you save money on your income taxes by reducing your income – it is a straight deduction…for each dollar you deposit, you are taxed on $1 less in income. A health savings account can also increase the amount of your premium tax credits by reducing your income. Lastly, an HSA can save you money by allowing you to set aside money for a number of years giving you the ability to negotiate cash payments with providers at the time of service.
Who benefits from an HSA? Health Savings Accounts are a good match for:
- Individuals looking to reduce the amount they pay in income taxes for the year.
- Individuals who are wanting to reduce their taxable income in order to qualify for tax credits and/or increase the amount of their premium tax credits.
- Individuals who would like to pay for dental, vision, and homeopathic medical needs with untaxed money.
- Individuals who want an incentive to save money for future medical expenses
Funds never expire – Your Health Savings Account is between you, your bank, and the IRS – it is not monitored by a health insurance company and is always yours – even if you are no longer insured with the original carrier and even if you are no longer insured on a qualified HSA plan. Unlike older-style employer Flexible Spending Account (FSA) plans, you are not required to spend the money in the account by a particular date.
What happens after you turn 65 and go on Medicare? When you turn 65 you are no longer eligible to fund your health savings account with the bank however you can continue to withdraw money from the account. If the money is used as a payment to you or a provider for IRS approved medical, dental, and vision expenses for you or any of your tax dependents, the withdrawals are not treated as income and are not subject to income taxes; if the funds are used for non-IRS approved expenses, the money is simply treated as income for that year.
HSA contribution limits
- For 2017 the maximum contributions are:
- Individual Coverage = $3,550 for 2020 – $3,600 for 2021
- Family Coverage (2+ individuals covered on HSA plan) = $7,100 for 2020 – $7,200 for 2021
- Individuals who are age 55+ may make an additional $1,000 Catch-Up contribution each calendar year
Are all high deductible plans HSA qualified? No – not all plans that have high deductibles are HSA qualified. In order for a plan to be HSA qualified it MUST be labeled as either HSA or HDHP. If you are unsure – ask!