Health Savings Accounts

Health Savings Accounts (HSAs) offers tax-advantage savings for medical expenses. An HSA is available to individuals with high-deductible health plans, it allows for tax-deductible contributions, tax-free withdrawals for qualified medical expenses, and tax-free growth. Contributions can be made by individuals or their employers, with funds rolling over annually. HSAs can be used for a wide range of healthcare costs and, after age 65, for non-medical expenses without penalty, though taxes may apply. HSAs promote long-term savings and financial flexibility for healthcare needs.

To open a Health Savings Account (HSA), you must meet the following eligibility requirements:

1. Enrollment in a High-Deductible Health Plan (HDHP): You must be covered by a health plan that meets the IRS’s criteria for an HDHP, which includes having a minimum deductible and a maximum out-of-pocket expense.
2. No Other Health Coverage: You cannot have any other health coverage, such as a secondary insurance plan, that isn’t an HDHP. Certain types of coverage are permitted, such as dental, vision, and disability insurance.
3. Not Enrolled in Medicare: You must not be enrolled in Medicare. Once you sign up for Medicare, you can no longer contribute to an HSA, although you can still use existing funds.
4. Dependents on Another’s Tax Return:  You can’t be claimed as a dependent on someone else’s tax return.

Meeting these requirements allows you to contribute to an HSA and take advantage of its tax benefits.

For 2024, if you have self-only HDHP coverage, you can contribute up to $4,150. If you have family HDHP coverage, you can contribute up to $8,300. For 2025, if you have self-only HDHP coverage, you can contribute up to $4,300. If you have family HDHP coverage, you can contribute up to $8,550.

Tax Benefits and Long-Term Savings

1. Tax-Deductible Contributions: Contributions to an HSA are tax-deductible, reducing your taxable income for the year in which they are made, whether you contribute directly or your employer makes contributions on your behalf.
2. Tax-Free Withdrawals: Withdrawals for qualified medical expenses are tax-free. Qualified expenses include doctor visits, prescriptions, dental and vision care, and certain over-the-counter medications.
3. Tax-Free Growth: The funds in your HSA grow tax-free. Once you have a sufficient balance (typically around $1,000), you may be able to invest the funds in various options such as mutual funds or ETFs, making the HSA a powerful tool for long-term savings.

Using Your HSA Funds

1. Qualified Medical Expenses: HSA funds can be used for a broad range of healthcare expenses, including dental and vision care, mental health services, long-term care insurance, and certain over-the-counter medications.
2. Non-Medical Expenses After Age 65: Once you turn 65, you can withdraw funds for non-medical expenses without incurring a penalty, though the withdrawal will be subject to income tax.
3. Medicare and Retirement: After age 65, you can also use your HSA to pay for Medicare premiums, and other healthcare expenses in retirement, without penalty. This makes the HSA a key tool in planning for retirement healthcare needs.

Additional Considerations

1. Portability: Since the HSA is owned by you, it is portable. This means if you change jobs or health plans, you can take the account with you and continue using the funds.
2. Contribution Deadline: Contributions for a given tax year can be made until the tax filing deadline of the following year (typically April 15). For example, contributions for the 2023 tax year can be made up until April 15, 2024.
3. HSA Fees: Some HSA providers charge fees for account maintenance, investments, or administrative services. Be sure to review fees before selecting a provider.