Medical expenses can extend way beyond the bill you receive from your doctor’s office. If you have a high-deductible health plan, you may be privy to a health savings account. With an HSA, you can deposit tax-free funds earmarked for paying off a range of medical costs including copayments and deductibles. Here is a closer look at the basics of an HSA.
Signing up for an HSA
If your employer offers a high-deductible health plan (or you are self-employed with a high-deductible health plan) you are eligible to open an HSA. There are many options and not all financial institutions are the same, so shop around to find the account that best meets your needs. Be sure to compare interest rates, minimum balances, fees, other charges and account features to find the account and provider that is right for you.
“For 2021, the IRS defines an HDHP as any health care plan with a deductible of at least $1,400 for an individual or $2,800 for a family. Total out-of-pocket expenses — including deductibles, copayments, and coinsurance — are limited to a total of $7,000 for an individual or $14,000 for a family. But these limits don’t apply to out-of-network services,” according to Forbes contributor Brian O’Connell and Forbes editor Benjamin Curry.
Contributing to an HSA
Depending on your HSA, you may be able to set up deductions from your paycheck that are automatically deposited into your HSA. You can then use checks or a debit card to draw funds from your HSA to pay for qualifying bills. How much money you contribute to your HSA is up to you, depending on your projected medical expenses, needs, and budget. There are government-set limits, though, to keep in mind.
“The annual contribution limits for HSA contributions (in 2021) are $3,600 (individual) and $7,200 (family), according to Moss. “For individuals age 55 and older, additional catch-up contributions are allowed. For 2021, this amount is $1,000. All contributions to an HSA must stop once the individual becomes eligible for Medicare.”
Tax benefits of an HSA
The best part of an HSA is its three-fold tax-free components. The money you save, grow, and spend does not suffer the wrath of taxation, as long as you follow HSA parameters. According to NerdWallet, “HSA contributions are either pre-tax (if through an employer) or tax-deductible (if you opened your own), you don’t pay taxes on the account’s growth, and if you make withdrawals for eligible expenses, you don’t pay tax on those withdrawals either.”
Using HSA funds
Not all medical expenses qualify for HSA funds, but many do. For example in 2020, HSA funds were approved to pay for prescriptions, lab fees, medically necessary items such as compression socks and weight loss programs, vision exams, and some dental and orthodontics expenses, according to O’Connell and Curry. Be sure to familiarize yourself with what the IRS deems acceptable before you access your HSA account.
If you do use HSA funds for non-qualified expenses before the age of 65, expect a tax penalty of 20 percent, warns Moss.
As you can see, an HSA can be a valuable tool in your financial portfolio and help you save and pay for a range of medical expenses. At Waukesha State Bank, our HSA is one of the most competitive products available in the marketplace today, with no set-up or monthly maintenance fees, a minimum balance of just $1.00, Debit Mastercard® access… and more! Visit with one our Personal Bankers to learn more, or open your HSA online.