How an HSA can help you save on health care expenses

Paying for health care can be a huge expense – especially if you have a high deductible. To help offset these costs, some people choose to open a health savings account. An HSA is a personal bank account that allows you to contribute and withdraw funds tax-free, but there’s a caveat: The money must be used to cover medical expenses such as prescription drugs, copays, eyeglasses or contact lenses, an even mental health treatment.

Who’s eligible to contribute to an HSA?

HSAs are available to those enrolled in a high-deductible health plan, typically through their employer. This type of insurance plan offers a lower monthly premium, but it comes with a higher out-of-pocket cost that you must meet before your insurance kicks in. To qualify for an HSA, you must have an annual deductible of at least $1,600 for individual coverage, or $3,200 for family coverage. As for annual out-of-pocket costs, the maximum cannot exceed $8,050 for single coverage and $16,100 for family coverage.

You will not be eligible to open an HSA if you’re enrolled in Medicare, or in a health care plan that doesn’t require you to pay deductibles or copays before receiving coverage.

How do you open an HSA?

If your employer doesn’t offer an HSA as part of your benefits package, and you’re eligible to contribute, you can open one yourself. Banks, credit unions and investment brokerages offer these accounts. If you are enrolling in a new high-deductible plan independently, your provider might be able to set one up for you. Plans are also offered through the health insurance marketplace or by visiting HealthCare.gov.

How do contributions and withdrawals work?

You can start contributing to your account once you’re enrolled in an HSA-eligible plan. Deposits can be made by you, your employer, family members and friends, but there is a limit on how much you can contribute. If you have individual coverage, you can contribute up to $4,150. If you have coverage for yourself and your family, the limit is $8,300. Contributions must stop once you enroll in any part of Medicare.

If you withdraw money for non-medical expenses before you turn 65, you will be required to pay the federal income tax and a 20% penalty. If you’re over the age of 65 and withdraw money for non-medical expenses, you won’t be penalized but you’ll still be taxed.

What are the benefits of an HSA?

In addition to helping you cover medical costs, you aren’t taxed on the money you put into your account or the interest it builds. You also won’t be taxed on withdrawals for eligible expenses. Another huge appeal is that your contributions don’t expire. The money stays in the account until it’s withdrawn.

The funds from your HSA can also be used to cover medical costs for your spouse or dependents – even if your plan doesn’t cover them. Once you open the account, it’s yours until you close it. This means you can keep and use your HSA when you retire or change employers. If your new employer doesn’t have a high-deductible plan, you won’t be able to continue contributing but you can still make withdrawals for qualified expenses. If you do enroll in a high-deductible plan, you can transfer your funds to a new HSA without penalty.

If you’re enrolled in a high-deductible health plan, consider opening an HSA. This account allows you to save money explicitly for medical expenses and the tax savings are triple. The money you invest into the account isn’t taxed, interest and investment earnings are tax-free, and you won’t pay taxes on eligible purchases. For more information on opening an HSA, visit HealthCare.gov or speak with your insurance provider.

Justin Stivers is a financial planner with Stivers Wealth Management and is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. Stivers Wealth Management is a separate entity and not affiliated with CoreCap Advisors. Contact him at justin.stivers@innfeedback.com.

© Entire contents copyright 2024 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.