3 Benefits of a Health Savings Account (HSA)
In 2022, employees in the U.S. paid 10.6% more for out-of-pocket healthcare expenses than the year before. Medical costs are also the number one reason for bankruptcies in the U.S.1 With healthcare costs rising, careful planning is crucial. A Health Savings Account (HSA) is a viable alternative to traditional healthcare plans and provides a safety net for these costs for years to come.
If you have a qualified high-deductible insurance plan (HDHP), you can open an HSA. HDHPs have a greater out-of-pocket deductible but a much lower monthly premium than traditional preferred provider organization plans (PPOs). These savings allow you to contribute more to an HSA instead of spending those funds on a higher premium.
1. Savings Grow Tax-Free
There are tax advantages of an HSA. Through payroll deduction, you can make pre-tax contributions to your HSA. The deposits made are tax deductible, and all interest accrued is tax deferred. You can also withdraw funds without a tax penalty if you use the funds for qualifying medical expenses.
To avoid a tax penalty, be aware of contribution limits. In 2023, the limit for individuals is $3,850 and $7,750 for families. If you exceed this limit, you will pay a 6% tax penalty. If you are 55 or older, you can contribute an extra $1,000 per year without penalty.
Another benefit to HSAs is that funds rollover each year. Unlike Flexible Spending Accounts (FSAs), there is no “use-it-or-lose-it” rule. You will receive these tax benefits while you have the funds invested, allowing the account to build as you prepare for retirement.
2. Easy Access to Funds When Needed
You can withdraw from an HSA without tax penalties if you use it for qualified medical expenses. These expenses include deductibles, dental, or vision care, prescriptions, co-pays, and more. However, the insurance premium for your HDHP isn’t a qualified expense. When deciding how much to keep in your HSA, you should have at minimum enough to cover your deductible.
An HSA stays with you even if you change jobs, become unemployed, or change medical coverage. If you decide to move away from an HDHP, you won’t be able to continue contributions, but you can still access the funds for medical expenses. If you decide to pay out-of-pocket for a medical expense, you can still be reimbursed later with your HSA if you kept the receipt.
3. Benefits of an HSA During Retirement
For a couple retiring in 2023, the estimated expense to cover medical needs for their final years is around $315,000,2 and this cost will only rise with the influx of medical costs. To cover medical expenses during retirement, financial advisors advise using HSAs rather than withdrawing from traditional retirement accounts.
Another benefit is that you aren’t required to take a minimum distribution from your HSA when you turn 72. This differs from IRAs or 401(k)s, where you are required to withdraw a certain amount and pay taxes on the distribution.
Once you reach 65, you can withdraw funds for non-medical reasons without paying the tax penalty that is applied for those under 65. However, you will still pay the income tax on any funds that you withdraw if they’re not qualified medical expenses. While on Medicare, you can’t put money in an HSA, but you can use existing funds for medical expenses, including Medicare premiums.
HSAs can also help you prepare for long-term care expenses, which Medicare generally does not cover. According to the U.S. Department of Health & Human Services, long-term care may cost over $90,000 per year.
Get Started on Your HSA with Texell
With Texell’s HSA accounts, there are no monthly service, maintenance, or minimum balance fees. Contributions made are pre-tax, which lower your taxable income and allows your HSA to grow at competitive interest rates.3 Visit Texell.org to learn more.
If you are an employer that offers HDHPs and would like to offer HSAs to your employees, Texell is happy to meet with you and set up accounts for your employees on-site. Contact Marketing@Texell.org to get started.
13 Shocking Healthcare Statistics for 2023 from Forbes.com.
2How to plan for rising health care costs from Fidelity.com.
3 You must maintain the disclosed minimum daily balance in your Account to obtain the disclosed Annual Percentage Yield. You will not earn dividends on any day your Account balance is below the required minimum daily balance.
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