(This post was originally published in May, 2013 and was updated in May, 2015)
In our last post, we discussed high-deductible health plans (HDHPs). In this post, we explain Health Savings Accounts (HSAs).
When you have insurance coverage through an HDHP you also establish a Health Savings Account — a vehicle for setting aside money to pay for medical-related costs. The benefits of HSAs are many. Here are some key points:
HSAs are Easy to Use
- Setting up an HSA is easy, and most provide a debit card for convenient access to the funds.
- Contributions can be made by you, your employer, or a third party.
Yearly HSA Contribution Limits are Set by the IRS:
2014 | 2015 | 2016 | |
HSA contribution limit (employer + employee) |
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(Note: the 2016 limits were announced in April, 2015 and this post has been updated accordingly.)
HSA Funds are Used to Pay for any Medically-necessary Expense
You can pay for any medical expense — even one that is 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, you will need to show proof that the money was spent only on qualified expenses:
- medical
- dental
- vision
- prescription drugs
- over-the-counter medications for which you have a physician’s prescription
- over-the-counter medical items (e.g., contact lens solution, bandages, etc.)
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 essentially forever!
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. And if it is, we’ll help you get set up!