If you happen to’ve recently signed up for a high-deductible health plan, or HDHP, you furthermore mght qualify for a health savings account (HSA). And identical to there are particular things that make an HDHP different from other health plans, an HSA has special features that make it a novel form of bank account to assist pay for what medical insurance covers.
Let’s go over the main points of what an HSA is and what to do if it’s worthwhile to open one up. We’ll also go over how you possibly can contribute to your HSA, what you possibly can spend your HSA funds on and the way the cash you’ve saved can follow you 12 months after 12 months – even to your next job and into retirement.
A health savings account is a form of bank account used specifically for medical costs – doctor visits, prescriptions, eyeglasses, and similar services. For an HSA you’ve through work, you select how much money out of your paycheck goes into this account each pay period before taxes are taken out. You too can deposit additional money to an HSA outside of labor contributions.
This pretax money stays in your account until it’s worthwhile to use it for eligible out-of-pocket medical expenses. Your HSA money is yours to maintain, rolling over from 12 months to 12 months and traveling with you should you leave your job.
High-deductible health plans (HDHPs) and HSAs
You’ll be able to only have an HSA should you’re enrolled in a high-deductible health plan (HDHP) – a medical insurance plan that incorporates a lower monthly premium with the trade-off of a better deductible.
HDHP thresholds change every 12 months. For 2023, these plans must:
- Have annual deductibles of at the least $1,500 for single coverage and $3,000 for family coverage
- Have an annual out-of-pocket maximum of not more than $7,500 for single coverage and $15,000 for family coverage
And for 2024, HDHP plans must:
- Have annual deductibles of at the least $1,600 for single coverage and $3,200 for family coverage
- Have an annual out-of-pocket maximum of not more than $8,050 for single coverage and $16,100 for family coverage
Often, these plans can have “HDHP,” “high-deductible health plan” or “HSA” of their name. In case your plan doesn’t, and it doesn’t meet HDHP requirements, then you definately won’t have the option to open or contribute to an HSA. You furthermore mght won’t be eligible to open an HSA should you’re enrolled in Medicare or have some other health care coverage. If you’ve questions on whether you’re eligible for an HSA or not, your employer or medical insurance company can have answers.
Health savings accounts have two close relatives: flexible spending accounts (FSAs) and health reimbursement accounts (HRAs). All three might be used to pay for health care expenses, but they’re very different in the case of things like funding and your ability to roll funds over from 12 months to 12 months.
Like an HSA, a flexible spending account (FSA) holds pretax money for medical, dental or vision expenses. Unlike an HSA, you possibly can pair an employer-offered FSA with any form of employer-sponsored health plan, not only a high-deductible health plan. There are also special limited-purpose FSAs for dental and vision expenses that may work alongside an HSA, in addition to separate special reimbursement accounts for dependent care and transportation.
Also unlike an HSA, the cash in an FSA typically must be spent before the tip of the 12 months. If you happen to hear “use it or lose it” in the case of FSAs, that’s the explanation why. Some employers may allow a limited rollover of FSA funds every year, nevertheless it’s limited by IRS regulations – unlike HSA funds which might carry over every year in full.
A health reimbursement account (HRA) can be different from an HSA. An HRA also incorporates pretax money to pay for health care costs, however the funds come entirely out of your employer – you don’t deposit any money into an HRA yourself. Your employer decides how much money goes into the account, what expenses are eligible and the way much money can carry over from 12 months to 12 months.
Consider an HSA as a checking account that’s especially for health care expenses. If you happen to qualify, it’s easy to open one up and use your HSA funds, either through a special debit card or by submitting receipts for reimbursement.
Your HSA can function a superb technique to track and manage your health care costs, providing you with a transparent look into where your health care dollars go over time and where you possibly can make adjustments to get probably the most out of your money.
Establishing your HSA
If you happen to’re enrolling in a high-deductible health plan through work, your employer may arrange an HSA for you or refer you to a financial institution that may. In case your employer sets up an HSA for you, you’ll enjoy a reasonably seamless experience since your HSA’s bank or credit union will integrate along with your payroll system, making pretax deductions out of your paycheck automatic.
If you happen to’re enrolling in a high-deductible health plan on your personal, your recent insurer may additionally have the option to establish an HSA for you. In the event that they can’t, or you desire to open your account someplace else, you possibly can arrange your HSA at any bank or credit union that gives one. Take note that HSA features may differ from place to position – all the time ask for an inventory of advantages and charges your HSA could have so that you get a full sense of what to anticipate.
Adding money to your HSA
As a part of organising an HSA through your employer, you’ll be asked how much money you’ll wish to put aside to your HSA. Each pay period, this amount will likely be sent on to your HSA before taxes are taken out of your paycheck. Your employer may additionally contribute money to your HSA or match your contributions.
You too can deposit your personal after-tax money to your HSA, either unexpectedly or through regular automatic deposits. Even higher, these deposits are deductible whenever you file your taxes every 12 months.
Nevertheless, whether you contribute via payroll deductions or deposits you make yourself, there are limits to the amount of cash that might be put into an HSA every year.
HSAs have limits on how much money you possibly can contribute
The IRS has annual limits for a way much might be contributed to HSAs. These limits can change every year.
In 2023, HSA contribution limits are:
- $3,850 for individual coverage
- $7,750 for family coverage
And in 2024, HSA contribution limits are:
- $4,150 for individual coverage
- $8,300 for family coverage
If you happen to’re 55 or older, you too can make an additional $1,000 “catch up” contribution every year.
These limits include money from all sources – such as you and your employer – and across all of your HSAs (should you occur to have multiple accounts). For more details, try irs.gov.
How much should I contribute to my HSA?
It is dependent upon how much you spend on health care every year and the way you see your needs changing in the long run. Before you select, take a while to look back at how much you’ve spent on medical expenses in past years – this may show you how to get an estimate of what you’ll spend in the approaching 12 months. Attempt to figure in any money you’ve spent on dental and vision care since you should utilize money out of your HSA for these, too.
It could actually also help to look forward. For instance, should you know you’re expecting a baby or planning for a significant surgery, events like these (and the way much they’ll cost) can even consider to what you would possibly want to avoid wasting in your HSA.
Remember, HSA funds don’t expire – they stick with you until you spend them. You’ll be able to put aside as much as your budget allows (so long as you stay under the IRS limits).
Is an HSA pretax?
Definitely – the truth is, the tax savings are triple!
- First, you’re not taxed on money that goes into your HSA.
- Second, HSA interest and investment earnings are tax free.
- And third, whenever you spend your HSA on eligible expenses, you’re not charged tax.
All of it means lower taxable income, tax-free earnings and tax-free health care spending. You’ll be able to even save your HSA funds all of the technique to retirement – and pay for health care expenses later in life.
Once money accumulates in your health savings account, you should utilize it for eligible health care expenses.
What can I take advantage of my HSA for?
Usually, you should utilize your HSA for a wide range of health care expenses, like doctor visits, lab fees, prescription medicines, home medical equipment and more. You too can use HSA funds for dental and vision care. Dentist office visits and braces are eligible too, in addition to eye exams and LASIK surgery.
In actual fact, now we have an inventory of qualifying medical expenses (PDF) that gives you an excellent idea of what you possibly can (and may’t) use your HSA funds for.
If you happen to’re a HealthPartners member with an HSA through Fidelity or Optum, you possibly can get more details about eligible expenses by signing in to your online account. Members even have access to Health Shopper, a simple technique to look up eligible expenses, in addition to a spot to seek out and buy eligible HSA products.
Spending your HSA funds – debit cards and reimbursement
There are two essential ways you possibly can access the cash in your HSA account: debit card and reimbursement.
HSA debit card
Your HSA may include a special debit card. That is the simplest technique to use your HSA – just present the debit card at your provider’s office when paying for services, or use it to pay for eligible items at a store or online. The cardboard takes the cash directly from the account. Just save the receipt in case you’re asked to confirm that the transaction was for eligible items or services.
HSA debit cards also provide one other money-saving convenience: Most will only work at HSA-eligible retailers, declining transactions elsewhere. That makes a superb safeguard against by accident buying ineligible items and services – a mistake that may carry a large IRS penalty of 20%.
Getting reimbursed out of your HSA
One other way you possibly can access your HSA funds is thru reimbursement, which takes a couple of extra steps but can act as an excellent backup in case you forget, can’t use or don’t have an HSA debit card.
Just pay to your HSA eligible expenses as you normally would and save the receipt. Then, submit your receipt together with the mandatory details to your HSA’s bank – some will allow you to submit photos of your receipts through their website or mobile app.
Reimbursement funds are sent on to your bank account should you’ve signed up for direct deposit, or by check. Some HSAs may charge fees for check reimbursements.
Keeping track of your HSA
Most banks provide you with access to your HSA through either a web-based account or mobile app. This manner, you possibly can keep track of deposits and withdrawals in real time while also seeing where your money goes. HealthPartners members with HSAs through Fidelity or Optum can see details by signing in to their online account or using the myHP mobile app for Android and iOS.
In any case, your HSA administrator will even send you IRS Form 5498-SA every spring, which is a summary of your HSA activity for the previous 12 months. If you receive it, double check to be certain that all the data is accurate and put it aside to your records.
Your HSA is all the time yours
As time goes on, probably the greatest parts about having an HSA is that the cash you deposit stays yours until you utilize it:
HSA funds roll over 12 months to 12 months (they don’t expire)
There’s no limit to the quantity of funds you possibly can roll over from 12 months to 12 months. Plus, unlike a versatile spending account (FSA), there’s no “use it or lose it” rule.
Bring your HSA with you
Leaving your current job? Your HSA travels with you, together with all of your funds. In case your next employer has an HDHP, you possibly can open a recent HSA and transfer your funds over without penalty. But should you don’t find yourself covered by an HDHP after you allow your current job, you possibly can still use your HSA funds for eligible expenses – you only can’t contribute extra money to your account.
Earning interest along with your HSA
HSAs can earn interest identical to other interest-bearing bank accounts. Plus, the interest you earn is tax free. If you happen to can’t find your account’s rate of interest, your HSA administrator can provide you with the main points.
Investing your HSA funds
When you’re over a minimum account balance, some HSAs will mean you can transfer a part of your funds right into a separate account to take a position. If offered, your HSA administrator can have more details about HSA investment options.
HSA funds after age 65
If you rejoice your sixty fifth birthday, your HSA becomes much more flexible. After age 65, the 20% IRS penalty not applies to using HSA funds for non-medical expenses (you’ll still pay regular tax on these withdrawals). In effect, this turns your HSA into a conventional IRA – which is why some people use their HSAs as a further technique to save for retirement.