HSA – Health-Savings Accounts
HSAs are powerful savings vehicles that allow Participants to save for current and future medical expenses. For those who are eligible, HSAs are one of the most flexible tools on the market. Here are talking points on ten reasons why:
1. HSAs offer more tax benefits than any savings vehicle on the market. Contributions are tax deductible for Participants. Earnings and interest grow tax-free. And withdrawals for eligible medical expenses are tax-free, too.
2. The money in your HSA rolls over year after year. It’s not use-it-or-lose-it, like flexible spending accounts (FSAs) or other medical savings plans.
3. HSAs are individually owned. So if you leave your employer, retire, or move, your account—and all the money in it—stays with you.
4. You get to select which HSA provider to use. You don’t have to go with the one your employer chooses if you don’t want to.
5. If you do contribute through your employer, you can change your contribution amount as often as your employer allows, even without a qualifying event. Note: Employers are required to allow you to make changes at least quarterly.
6. Your HSA dollars are always available to pay for eligible medical expenses—for you, your spouse, and your tax dependents. Even if they’re on different health insurance. Even if they’re not eligible to have their own HSA.
7. Even if you become ineligible to contribute to your HSA, you can continue to pay medical expenses tax free from the funds currently in your account.
8. The 20% penalty for using your HSA for non-eligible expenses is lifted at age 65. At that point, you just have to pay ordinary income tax on withdrawals for non-eligible expenses, making your HSA a lot like a regular retirement fund.
9. You can reimburse yourself for eligible expenses later—even years down the road. Check out the video titled “Think Inside the (Shoe)Box” for a quick primer on how this works.
10. You can invest your HSA funds. And since the funds roll over year-after-year, and you can postpone reimbursing yourself indefinitely, HSAs can grow to become sizeable nest eggs.
KEY POINTS BY AGE AND STAGE
Also, among Participants, the attraction to HSAs varies based on age and financial stability.
For those employees near retirement:
• The ability to increase their HSA contributions with catch-up contributions is important.
• IRS regulations allow the tax-free inheritance of the HSA to the spouse.
• There are no required minimum distributions, unlike an IRA.
• HSA dollars are available to pay long-term care premiums and Medicare parts B and D.
• There are no penalties for nonqualified withdrawals after age 65. Withdrawals are subject only to normal income taxes.
For younger employees, HSAs are attractive for different reasons:
• They can save money on their health insurance premiums.
• The HSA-qualified plan caps out-of-pocket expenses, while PPOs include cost-sharing at very high levels.
• In the worst-case scenario, many younger employees will end up spending what they would with the traditional PPO. But in a healthy year (any many younger employees are relatively healthy), they’ll be able to pocket and invest those dollars.
• Tax savings are often viewed as a government rebate.
• There are no required minimum distributions, unlike an IRA.
• HSA dollars are available to pay long-term care premiums and Medicare parts B and D.
• There are no penalties for nonqualified withdrawals after age 65. Withdrawals are subject only to normal income taxes.
• Employer contributions to the HSA are viewed as an additional benefit from the employer.
• The investment opportunity is appealing, and the opportunity for compound interest is great, especially given the length of time until retirement.
• While HSAs are attractive to many consumers, they are especially appealing to those who recognize they rarely access the insurance benefit.
• There is no need to itemize to get the tax savings.
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