A Health Savings Account (HSA) is an excellent way to save money tax-free, pay health plan deductibles and non-covered health expenses, while providing for future health-care costs as well.
* Please consult your tax advisor for guidance on and usage of a Health Savings Account.
Benefits of an HSA
- Contributions you make are tax deductible, or if made through a payroll deduction, they are pretax. If your employer makes a contribution, there is also no tax to the employer.
- All interest earned is tax-free.
- All withdrawals are tax-free if used to pay qualified medical expenses.
- HSA accounts are portable—you keep them even if you change jobs or quit working.
How a Health Savings Account works
- A Health Savings Account, or HSA, is available to anyone covered by a high-deductible health plan—a plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,900 for self-only coverage or $13,800 for family coverage.
- HSA funds may be used to pay plan deductibles, copays, and other qualified health-care expenses that may not be covered by your health plan.
- For 2020, an individual may contribute up to $3,550 to an HSA, or $7,100 for a family. For those 55 years and older, the 2020 HSA catch up contribution limit remains the same – $1,000. With a catch-up contribution, people who have self-only coverage can contribute up to $4,550 in 2020; those who have family coverage can contribute a maximum of $8,100. Note: If both individuals are 55 or older and making a catch up contribution, be sure to deposit each of their catch up contributions in their own account, they both cannot be deposited into only one account.
- You can make withdrawals at any time to pay qualified medical expenses. This includes most services from licensed health providers (doctors, dentists, optometrists, chiropractors, etc.), as well as diagnostic tests, medical devices, prescriptions, eyeglasses, hearing aids, other health services such as acupuncture and substance-abuse treatment.
- When you enroll in Medicare, you can no longer make contributions to your HSA, but you can continue to use the funds in your HSA for qualified medical expenses. You can also use your HSA funds to pay health insurance premiums after you retire. The funds and accrued interest will remain tax-free.