Do you have a high-deductible health insurance plan? The IRS defines HDHPs as having a deductible of at least $1,400 for an individual and $2,800 for a family. Enrollment in HDHPs has been on the rise, with nearly 53% of Americans covered by employer-sponsored insurance enrolled in an HDHP. If you’re among them, a Health Savings Account (HSA) could be an excellent way to defray some of the costs associated with meeting your annual healthcare needs. With costs continuing to skyrocket, you should consider enrolling in an HSA to keep more money in your pocket.
What are Health Savings Accounts?
An HSA is a tax-exempt savings account used for out-of-pocket medical expenses incurred before you meet your annual deductible. HSA accounts can be opened with a qualified HSA trustee such as a bank, insurance company, or more. Some employers may offer an HSA for employees to contribute to. You can also open an HSA on your own, such as from Peoples Bank.
What Are the Rules for Health Savings Accounts?
As mentioned earlier, health savings account eligibility is based on your enrollment in a high-deductible health plan. Anyone who is enrolled in a high-deductible health plan is eligible to make tax-deferred contributions to an HSA. Those funds can be rolled over from year to year if you don’t use your entire account balance each year to pay for qualified medical expenses.
So, how much can you contribute to your HSA each year?
Health Savings Account Limits in 2022 are:
- $3,650 for single people
- $7,300 for families
At age 55 and above, an additional $1,000 contribution can be made for both individuals and families. This is known as a “catch-up period” for anyone who wants to boost their retirement and health care savings before retirement.
Both individuals and employers can contribute funds to HSAs. If you have an HSA through your employer, you can allocate a certain amount to be contributed from each paycheck. Your employer may make a one-time, monthly, or quarterly contribution as well. The same annual limit applies to what you and your employer both contribute.
PRO TIP: If you anticipate receiving a bonus from your employer, consider asking your payroll administrator to distribute your bonus as a pre-tax contribution to your HSA. Doing so would result in receiving the full value of the bonus which can then grow tax free.
HSAs can earn interest after a certain balance is accrued. Some HSA plans have options to invest HSA funds in other investment or savings vehicles. This is why some people treat their HSA like another retirement account. After age 65, you can withdraw funds from your HSA for non-qualified expenses without facing a penalty fee. Your withdrawals will just be subjected to income tax.If you’re wondering, “Can I open a health savings account on my own?” The answer is yes. Financial institutions like Peoples Bank can help you open a Health Savings Account as long as you meet the HDHP requirement.
Qualified medical expenses include:
- Covid-19 supplies such as disposable face masks, rapid tests, and more
- Over-the-counter medicines
- Prescription medications
- Doctor’s bills
- Dental and Vision care
- Alcohol and Substance Abuse Treatment
- Baby supplies
- …and more!
For some, you require a prescription or letter from a doctor. Others are available over-the-counter or at a visit with a health provider. This means that money deposited in HSAs spent on qualified health services is untaxed from start to finish.
Additional Health Savings Account Rules
An HSA is one way to make your healthcare more affordable.
If you disburse funds from your HSA on something other than a qualified medical expense, you incur a tax penalty that includes income tax on the funds plus an additional 20%. Unlike accounts like Flexible Spending Accounts (FSAs), you can carry over funds in your HSA year-to-year. This means you can accumulate funds in your HSA over time, and the total can exceed the annual contribution limits defined above.
Once you reach age 65, you can spend your HSA funds as you see fit without worrying about a tax penalty. This makes HSAs a great option for saving funds for retirement, in addition to other retirement accounts.
Health Savings Account Rollovers
You own your HSA account, regardless of whether you opened it by yourself or if your employer set it up for you.
If you have an employer-established HSA and leave your job, you are allowed to maintain the account as it was set up or roll it over into a new HSA.
This is done either directly between HSA trustees at your request, or the original HSA can send you a check for the funds in the account, which you are then responsible for depositing into another HSA within 60 days. You can do this only once every 12 months.
Remember, you are only eligible to contribute to your HSA so long as you have a high-deductible health plan. Bear this in mind if you are changing jobs or adjusting your benefits.
Open or Rollover an HSA with Peoples Bank
HSAs give you a great deal of flexibility for saving and investing to meet your healthcare and retirement needs. If you’re considering opening a new HSA or rolling over an existing one, contact Peoples Bank or visit your nearest location.