(This post was originally published in May 2013 and was updated in Nov 2016, Oct 2017, May 2018, Aug 2018, Nov 2019, May 2020, June 2021, May, 2022, and September, 2023)
When you have insurance coverage through a high-deductible health plan (HDHP), you may establish a Health Savings Account (HSA). An HSA is an account into which you deposit money to pay for medical-related costs. There are many benefits of HSAs:
HSAs are Easy to Use
- An HSA is easy to set up and easy to use!
- Most banks will give you a debit card to access your money.
- You, your employer, or a third party can make contributions.
Yearly HSA Contribution Limits are Set by the IRS:
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If you are age 55 or older by the end of year, you can contribute an additional $1,000 to your HSA. This is called a catch-up contribution.
HSA Funds are Used to Pay for Medically-Necessary Expense
You can pay for IRS-approved medical expenses — even those not covered by your insurance — from your HSA.
Using tax-free HSA dollars to pay for medical expenses results in considerable savings over the years. When you make a qualified medical purchase, simply keep your receipts. In the case of an audit, show the receipts as proof that you spent the money on qualified expenses. Examples of qualified expenses include (refer to IRS site for full list):
- medical
- dental
- vision
- prescription drugs
HSAs are Tax-advantageous
- HSA contributions are tax-free or tax-deductible
- Using tax-free money to pay for qualified medical expenses = 20-30% savings (depending on your tax bracket)!
- Interest earned on the account is tax-free
- Funds can also be invested (stocks, bonds, mutual funds, etc.) for greater growth potential
An HSA Stays with You and Can Last Forever
- You own your HSA. It does not matter if you change jobs, move, retire, etc. — the account is yours.
- HSAs are NOT “use it or lose it”. Money rolls from year to year and stays in the account until you spend it!
HSAs are a Great Tool for Retirement Planning
- After age 65, you may withdraw funds from an HSA penalty-free for any purpose.
HDHPs and HSAs Encourage Informed Decisions
- Since you’re paying for your own health care costs, you have more incentive to “shop around” for the best health care at the best price. This puts you more in control and could save you money!
High-deductible health plans (HDHP) and Health Savings Accounts (HSA) are not for everyone, so give us a call to discuss whether it may be a good fit for you and your family.
