A tax-advantaged health savings account can be used to pay for out-of-pocket medical expenses. Your spouse or dependents can also use your HSA if you are the account holder. If you have individual or family health insurance, you can contribute up $3,650 in 2022. You can contribute an additional $1,000 if you are 55 years old or older.
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According to a survey by Willis Towers Watson benefits consultant, more than 80% of large employers offer HSAs to employees. However, not all are eligible to contribute to an HSA. Your health insurance plan must have a high-deductible plan in order to be eligible. The monthly premiums for high-deductible plans are typically lower but you will have to pay more out-of-pocket before your insurance coverage kicks in. The 2022 health plan must have a minimum $1,400 deductible for self-only coverage and $2,800 for family coverage.
Benefits of HSA You May Not Be Using
HSAs offer three tax benefits: HSAs can be accessed on a pretax basis and your savings will grow tax-free over time. Withdrawals are also tax-free so long as they are used for qualified medical expenses.
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- The Benefits
HSAs offer three tax benefits: HSAs can be accessed on a pretax basis and your savings will grow tax-free over time. Withdrawals are also tax-free so long as they are used for qualified medical expenses.
HSAs offer flexibility as well. An HSA isn’t like a flexible spending account for healthcare. The funds don’t vanish if they aren’t used by the end. An HSA will give you more benefits if you use the cash you have to pay your current out-of pocket medical bills. The account will also grow. You can invest all or part of your HSA contributions in mutual funds. This offers you the possibility of greater long-term growth that if you place all your contributions into a savings account or money market fund. You can invest enough money in a low risk account to pay your current year’s insurance deductible, and then invest the remainder in mutual funds to cover longer-term expenses.
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- Hidden Features
Patricia Graves (SHRM knowledge adviser), says that HSAs can help you plan for your future wealth and health. This is especially true for retirees. After you sign up to Medicare, you can’t contribute to an HSA (at least not according to current law). However, there is legislation in Congress that could change this. However, the funds can be used tax-free to pay for medical expenses once you have signed up for Medicare. You can withdraw money for any non-medical expenses after age 65 without paying a 20% penalty. However, taxes will be charged on these withdrawals. The money should be used for medical expenses, which can add up in retirement. The list of eligible expenses is extensive. You can also use the money to pay deductibles, copays, and any other medical expenses that aren’t covered by insurance. HSA dollars can also be used to pay part of long-term care insurance premiums. The limits are dependent on the account holder’s age.
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- Selecting a plan
Employers may be encouraged to enroll in high-deductible plans by offering matching HSA contribution. According to Devenir, a HSA consulting company, the average employer contribution was $867 for 2021. HSAs are not available from all employers. However, as long as your employer offers a high-deductible plan you can open an HSA on your own through a financial institution that offers them. If your employer offers a plan with high fees and limited investment options, you may want to shop around. HSAsearch.com allows you to compare plans. However, you might lose some perks if that is your choice, Rich Ward, the managing director and head for health solutions at TIAA (a HSA provider). He says that using an HSA not offered by your employer may result in you losing the convenience of pretax contributions being deducted from your paycheck. If you choose an HSA offered by another employer, you might not be eligible to receive matching contributions.
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- New Limits
Due to recent increases in living costs, HSA contribution limits for 2023 will increase significantly. For self-only coverage, the annual contribution limit will rise from $3,650 a $3,850 and for family coverage, it will jump from $7.300 to $7.750. The catch-up contribution limit for account holders 55 years and older will remain the same as 2022, at $1,000.