A health savings account or HSA for short is a tax-exempt plan that let you save money for health-related expenses. In order to qualify for the HSA plan, you will need to be enrolled in a High Deductible Health Plan (HDHP). Some of the benefits of choosing an HSA plan include but are not limited to saving for retirement, lowering your taxable income, and paying for health-related expenses.
Not everyone can choose an HSA plan. In order to make contributions to this plan, you will need to have high deductible health(HDPH) coverage.
This article will walk you through the benefits of choosing an HSA plan.
HSA plans are designed to help people pay for health-related expenses. Medical expenses are some of the hardest to pay off for millions of people. Some people declare bankruptcy due to medical bills. According to kff.org, 1 in 10 adults are struggling with medical bills or debt related to medical expenses. In addition, millions of people owe on average more than $10,000 in medical-related debt.
BY contributing to your HSA plan, you get to save for future medical uncertainties. The money you have in your HSA plan can be used to cover coinsurance, your deductible, and copays. If there are some expenses that your insurance does not cover, you can use the money in your HSA to cover those expenses. These expenses include but are not limited to dental care, orthodontia contacts, eyeglasses, etc.
Every expense on your HSA plan must be eligible. If you use your HSA money for non-qualified medical expenses, you may pay taxes and penalties.
2. You are in control of your HSA account
You’re in control of all the money inside your SHA plan. That is you can decide how much you want to invest or keep inside the HSA plan. Every dollar you contributed to the plan is yours until you choose to use it or withdraw it.
Unlike a Flexible Spending Account(FSA) where you lose your money if you did not spend it by the end of the enrollment year; all unused funds inside your HSA will be rolled over to the following year. This gives you complete control and stability of your HSA plan.
3. An HSA plan can help you save for retirement
There are countless ways to save for retirement. Most people only know about standard retirement savings plans such as 401(k) plans, Roth IRA, and Traditional IRA. There are other tax-advantaged retirement saving plans you can use to boost your retirement savings.
The health savings account can also help you achieve your retirement savings goals. How can you use your HSA as a retirment savings plan?
The key is to invest and keep the money in your HSA without withdrawing it. This will allow you to grow your account without paying taxes on earnings just like retirement plans. In addition, keeping the money in the account will prevent you from paying the penalty on non-qualified health expenses.
When you turn 65, you will be eligible to use the money in your HSA without a penalty. By following this strategy, your HSA account will serve the same purpose as a normal retirment plan. Since contributions to your HSA are tax-deductible, you will pay tax on any withdrawal from the account regardless of your age(for non-medical-related expenses).
4. Your HSA account is an investment
Every year, you are eligible to make contributions to your HSA plan. As you grow your amount, there is a certain level where you will be eligible to invest some of the money in your HSA. This is one of the best benefits of the HSA plan. Investment options for the account will include some of the following: ETFs, Mutual Funds, Stocks, etc.
5. Tax-free growth
As long as you do not withdraw the money in your HSA plan, you will grow the account tax-free through different investments. That is any earnings you make in the account can be reinvested without paying tax to allow the compound interest effect. Every year, your contributions can be used for medical-related expenses or invested based on your investment preferences.
6. An HSA plan gives you upfront tax benefits
One of the benefits of choosing the HSA plan is that it gives you direct and upfront tax benefits. Every dollar you put in your HSA comes from your before-tax money or is tax-deductible. Those contributions automatically reduce your taxable income for the year you contributed to the plan.
7. Your HSA plan is Portal
One great benefit of the HSA plan is that it stays with you no matter who you work for or how long. When you change employers or leave work, the HSA stays without until you use the money on medical-related expenses or withdraw your funds.
Who is eligible to offer an HSA plan?
Before you start an HSA plan, keep in mind that you can only open an HSA through a trustee. A trustee is anyone approved by IRS who can include:
- Bank
- Insurance company, or
- Any other entity approved by the IRS to be a trustee of IRAs or Archer MSAs.
Who is eligible to choose an HSA plan?
You don’t need permission from the IRS to open an HSA plan. However, there are certain requirements you must meet before you are eligible to choose an HSA plan. The following are the requirement for an individual before choosing an HSA plan.
- You have no other health coverage except what is accepted by IRS through other health coverages.
- You are covered under a high deductible health plan(HDHP)
- None can claim you as a dependent on their tax return for the previous tax year
- You don’t have medicare
What are the maximum contributions to HSA plans
Like any other tax-exempt plan, there are limits to how much you can contribute to your health savings plan. The limit will depend on your filing status.
Everyone who is eligible for the HSA plan can make contributions to the plan.
For 2022, you can contribute up to $3,650 if you have self-only HDHP coverage. If you have family HDHP coverage, the maximum contribution you can make to your health saving plan is $7,300.
| Status | Contribution limits |
| Self-only HDHP coverage | $3,650 |
| Family HDHP coverage | $7,300 |
What are the maximum and minimum annual deductibles for HSA in 2022?
The following are the minimum and maximum annual deductibles for an HSA plan for 2022.
| Features | Self-HDHP | Family HDHP |
| Minimum annual deductible | $1,400 | $2,800 |
| Maximum annual deductible plus other out-of-pocket expenses | $7,000 | $14,000 |
The bottom line
The health savings account is one of the best accounts that can help you cover your health-related expenses and save for retirement at the same time. This is possible through the HSA tax advantages, investment options, tax-free growth, pre-tax contributions, and complete ownership of the money in the account.
