Benefits and Compensation

Everything You Need to Know About Health Savings Accounts  

A health savings account (HSA) is a flexible financial tool that serves you throughout every stage of your life. This account allows you to take control of your finances in an individually tailored way to your financial situation. The HSA market is rapidly evolving and growing with each passing year. According to the 2022 Midyear Devenir HSA Research Report, Devenir projects the HSA market will reach 39 million accounts by the end of 2024, holding $142 billion in assets. Now is the time for you to learn about the benefits of being an HSA account holder and how it can improve your financial well-being.

Understand the Basics of HSAs

There are many benefits of having an HSA, and to get the most out of your account, it’s important to familiarize yourself with each. An HSA is an individually owned, tax-advantaged account that may be used to pay for qualified medical expenses or save for retirement and long-term care expenses. In 2023, the maximum contribution amount for HSAs is $3,850 for individuals and $7,750 for family coverage. If you are 55 or older, you can also contribute an extra $1,000 at the end of the year.

Determine if You Are Eligible for an HSA

You are ready to open and contribute to an HSA if you:

  • Are enrolled in a high-deductible health plan (HDHP);
  • Are not enrolled in any part of Medicare;
  • Are not claimed as a dependent on another’s taxes; and
  • Do not have any other nonpermissible health coverage, such as a medical plan other than an HDHP.

It’s important to note that while there may be restrictions for making HSA contributions, there are no restrictions on when you can spend your HSA funds. This allows you to decide when and where you want to put your funds without fearing they will expire at the end of the benefit year.

Understand the Unique Benefits of an HSA

An HSA gives you the opportunity to save money on a tax-free basis and serves as a useful investment vehicle to add to your 401(k) and/or individual retirement account (IRA) when looking at your future savings. The triple tax advantage offered by HSAs means:

  • Funds going into the HSA are tax-free.
  • Funds earn tax-free interest.
  • Funds and investment earnings withdrawn from the account for eligible medical expenses are tax-free.

In addition, an HSA is owned by you and offers benefits that differ greatly from a flexible spending account (FSA), which is sponsored by your employer. Unlike FSAs, the money in your HSA is yours, no matter if you change jobs or choose to retire. An HSA gives you the ability to roll over your entire unspent amount year after year and calculates, compounds, and credits interest monthly.

Set Up Your HSA

During annual enrollment, many employers will offer HSAs, but if yours doesn’t, you can still open one with an HSA provider. If you have an insurance provider, check to see if it partners with a certain financial institution. Alternatively, you can check with the personal bank you use for your regular checking and savings account needs, as many offer HSAs. Your bank will be able to provide you with assistance on setting up an HSA for your individual or family coverage.

Discover How to Get the Most Out of Your HSA

Whether you’re new or not new to the world of HSAs, there are a couple of approaches you can take to get the most out of your HSA benefits. To see the true impact of an HSA, it is important to learn how to maximize your HSA each year. For example, in your first year of having an HSA, your strategy might look like spending or minimally saving, while in your sixth or tenth year, you might change your focus to increasing your contributions to save more and invest. As you progress through life stages, the way you use your HSA will change along with you, so don’t be afraid to switch up your HSA strategies for your financial needs.

Another way to fully utilize your HSA is to be intentional about investing assets within your HSA. Many are leaving money on the table; according to the Employee Benefit Research Institute’s analysis, only 12% of account holders invested their HSAs in assets other than cash in the past year. One of the greatest advantages of an HSA is that it offers the ability to make investments once you reach a certain amount of money.

Whether you are new to HSAs or have had an account for several years, it is a great time to better understand all your HSA offers and plan ahead for financial well-being. Financial tools like HSAs offer flexibility and give you the power to better prepare for your financial future. Speak to a trusted financial advisor to see how an HSA could help you reach your financial goals.

Phil Mason is Chief Operating Officer, Institutional Banking and Director, Healthcare Services at UMB Bank.

Leave a Reply

Your email address will not be published. Required fields are marked *