Health Savings Accounts – Another way to invest in yourself.
Is it a credit card? A debit card? A savings account? A health savings account (HSA) is a tax-advantaged savings account designed to help individuals with high-deductible health plans (HDHPs) save money for medical expenses. An HSA allows you to set aside pre-tax or after-tax dollars from your paycheck to contribute to the account. These funds can be used to pay for qualified medical expenses such as deductibles, copayments, and prescription drugs.
Advantages of an HSA
HSAs offer several advantages, including tax-free contributions, tax-free earnings, and tax-free withdrawals for qualified medical expenses. Additionally, HSA contributions roll over year-to-year, meaning you can accumulate savings for future healthcare needs. Some employers may also contribute to their employees’ HSAs as part of their benefits package.
Who is eligible for an HSA?
To be eligible to open an HSA, you must be enrolled in a high-deductible health plan and not have other health coverage, such as Medicare or a traditional health insurance plan. There are annual contribution limits for HSAs, and the funds can only be used for qualified medical expenses. You may be subject to penalties and taxes if you withdraw funds for non-qualified expenses before age 65.
Make the Most Of Your HSA
HSAs are a powerful tool for paying for medical expenses and provide a cushion to assist with deductibles and out-of-pocket expenses. As you enjoy the benefits of an HSA, let’s review a few reminders and tips to make the most out of your card:
- Only use for qualified expenses: Your HSA card can only be used for qualified medical expenses, products, and services. Your HSA will typically provide a list of qualified ways to use your funds. Co-pays, office visits, and medical supplies generally qualify. Vitamins and supplements often do not qualify for HSA usage. A chiropractic visit can be paid for by your card; however, recommended supplements may not. Take your time to review the different avenues where your card can be used. Keep track of your expenses, and make sure you are only using your HSA funds for eligible expenses to avoid penalties and taxes.
- Treat it like cash: Often, medical providers offer a discount for self-pay patients that lack health insurance or have a high-deductible plan. If you use your HSA for a visit, ask if a self-pay discount is available by using your card.
- Keep receipts: As mentioned earlier, your card must be used for qualified expenses. Keep your receipts should your provider or the IRS audit you.
- Contribute as much as you can: The maximum contribution limit for an HSA is adjusted annually, so make sure you know the current limit. If possible, try to contribute the maximum amount to take advantage of the tax benefits and to build up your savings. As of March 2023, the annual contribution maximum is $3,600 for an individual and $7,200 for a family. Remember, these funds are taken from your paycheck pre-tax, so their actual worth is higher in the long run.
- Invest your funds: Many HSA providers offer investment options, allowing you to invest your HSA funds in mutual funds, stocks, and other investments. If you don’t need the funds for current medical expenses, consider investing them to grow your savings.
If you qualify for an HSA, it’s probably in your best interest to take advantage of the account. By contributing as much as possible each year and ensuring it is invested, you’ll accumulate savings for future healthcare needs and have peace of mind when those unexpected health costs pop up.