How does an HSA work?
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What is an HSA?
A health savings account (HSA) is a tax-advantaged savings account that can be used to pay for medical, dental, vision and other qualified medical expenses now or later in life. Contributions are limited annually and the funds can even be invested, making it a great addition to your retirement portfolio.
Who is eligible?
In order to contribute, you must be enrolled in a high deductible health plan, not be covered under another health plan, not be another person’s tax dependent, and if over the age of 65, not be enrolled in Medicare. There are no eligibility requirements to spend previously-contributed HSA funds.
What are the benefits of an HSA?
Your HSA comes with a triple tax advantage
1. Money goes in tax-free.
Most employers offer a payroll deduction, allowing you to make contributions to your HSA on a pre-tax basis. The contribution is deposited into your HSA prior to taxes being applied to your paycheck, making your savings immediate. You can also contribute to your HSA post-tax and claim a deduction when filing your annual taxes.
2. Money comes out tax-free.
Qualified medical expenses can be made tax-free when you use your HSA. Purchases can be made directly from your HSA account, either by using your debit card or online bill-pay. You can also pay out-of-pocket and then reimburse yourself from your HSA.
3. Earn interest, tax-free.
The interest on HSA funds grow on a tax-free basis. And, unlike most savings accounts, interest earned on an HSA is not considered taxable income when the funds are used for qualified medical expenses.
4. In addition, you can grow your HSA savings.
Once your balance exceeds the minimum amount specified by your bank, you’re eligible to invest your funds for growth. Similar to a 401(k), you can choose from a variety of mutual funds. Our partner for HSA investments offers a variety of mutual fund options.
What expenses are considered eligible?
Individuals can save up to 30%* on the cost of paying for many of the health care items and services you’re already paying for
Common eligible expenses
- Health plan co-pays
- Dental care
- Artificial Teeth
- Contact Lenses
- Prescription Medicines
- Hearing Aids
- Psychiatric Care
- Pregnancy Test
- Weight Loss Programs
For a complete list of eligible expenses as defined by the IRS, view IRS publication 502.
*For illustrative purposes only. Savings calculations are based on a federal tax rate of 15%, state tax rate of 5%, and 7.65% FICA.
How can I contribute to my HSA?
Contributions can be made in many ways – we’ve included the most common ones below
Payroll Deduction Contribution
Payroll deduction may be offered by your employer. Your annual contribution will be deducted from your payroll before taxes throughout the year.
Direct contributions can also be made from your personal checking account and can be deducted on your personal income tax return.
You are able to make changes in your contributions by providing the applicable notice of change provided by your employer.
Annual contributions may not exceed $3,450 for individuals or $6,900 for families in 2018. If you are 55 years old, or older, you may make an additional $1,000 catch-up contribution.
Contributions for the tax year can be made at any time after the plan year has begun, and prior to the deadline for filing the federal income tax return for that year. For most taxpayers, the deadline is April 15 of the year following the year for which contributions are made.
Prior HSA Contributions
If you have an existing HSA, you may have the choice to transfer the funds to your new HSA.
How do I access my HSA funds?
Using your HSA Funds
You can pay for qualified medical expenses directly from your account using your HSA debit card, which can be used at any health care provider or pharmacy where debit cards are accepted. If you are also enrolled in other financial accounts, a limited-purpose FSA for
example, you will use a single card to pay all your expenses…it’s easy! Your HSA also includes an electronic bill pay
feature that allows you to easily pay a bill directly from your account. If you pay for qualified out-of-pocket medical expenses, you can reimburse yourself from your HSA by transferring funds to your personal checking or savings account. You do not need to submit a claim, but
be sure to maintain proper receipt documentation in the event of an audit.
How do I grow my HSA funds?
Once your HSA balance exceeds the required minimum account balance, you’re eligible to invest your funds for growth. Similar to a 401(k), you can choose from a variety of mutual funds.
Investment Funds Transfer
After establishing your investment account, you will have the ability to view your balances, transactions, and portfolio holdings, as well as place trades from within your portal – and easily transfer money between your regular HSA and your HSA investment account.