Background
Health Savings Accounts (HSAs) are individually owned healthcare reimbursement accounts that allow tax-free dollars to fund the account. Interest or dividends accumulate tax free, and payment of qualified medical expenses are tax free. And, to make it the grand slam of all benefits, there is no limit on the amount of money that may accumulate in the HSA. That’s why an HSA is a healthcare benefit that can be used now and for future medical needs.
Requirements for setting up and contributing to an HSA
An individual setting up an HSA must be eligible to establish the account on the first day of any month. For instance, if she is covered by an HDHP on June 15, the HSA could be established on or after July 1. She also does not have to decide before the beginning of the plan year what to contribute for the entire plan year. Generally, changes to HSA elections do not require a change in status and may be changed at least monthly or more often if the plan document allows.
Easy set up and pre-tax contributions transferred to the HSA makes saving money easy.
Reimbursements/payments from an HSA
Individuals do not have to be covered by an HDHP for any month. In other words, although participants may not be able to contribute to their HSA, the funds are still available to pay for qualified medical expenses; including COBRA continuation premiums.
Add a debit card for accessing the funds, and here’s a benefit that everyone will want.
Putting HSA money to work
HSAs are personally owned savings vehicles. They earn interest and can be invested. Just like a 401(k) plan, investment options are available. Remember, interest and earnings are not taxed and the HSA balance is not limited.
HSAs are powerful retirement planning tools. A financial adviser can illustrate how funds from an HSA, when used for eligible medical expenses, will go a lot further than from a 401(k) plan. That’s because the HSA money is not taxed if withdrawn for eligible medical expenses.
Medical expenses continue to rise. It is estimated that couples retiring right now might expect to spend about $250,000 on medical expense during their retirement. Funding in an HSA now can be there to pay medical expenses in the future. In fact, contributing the maximum limits every year to an HSA may reap more benefits at retirement. Qualified medical bills paid from an HSA are not taxable and preserves money in the 401(k) account. And HSAs do not require any obligatory withdrawals.
Young or Old, large or small medical bills – everyone benefits.
This is a brief overview of HSAs. If you would like further information, please contact your Relationship Management team.