Opening a Health Savings Account (HSA) can be easy and it can change your outlook on your personal healthcare. With the triple tax savings of tax-free contribution, withdrawals for eligible expenses, and earnings on interest and investments, an HSA makes a lot of sense for people who want a bigger say in how they spend their healthcare dollars. Plus, an HSA can be used as retirement account (similar to a 401k) after age 65. While a lot of people think about opening an HSA during open enrollment, you can actually open an HSA at any time during the year. However, there are a few things you should ask BEFORE you open an HSA.
Questions to Ask Before You Open an HSA
Is my healthcare plan a qualified high deductible plan?
This is the first question you need to consider because it is a requirement for opening an account. Is your health insurance plan a qualified high deductible health plan (HDHP)? In order to open an HSA, the minimum annual deductible for a qualified HDHP is $1,400 for self-only coverage and $2,800 for family coverage.
Why do I want to sign up for an HSA?
When you have a high deductible health plan, you pay less in premiums (the price of your insurance plan) each month, but have a higher deductible (your out-of-pocket expenses). The savings you get from the lower premiums can be put into the HSA in order to pay for out-of-pocket healthcare costs.
If you don’t use the money, that’s okay. It stays in your account until you need it.
How much do I need to open an account?
There is no IRS rule that says you need a minimum balance to open your HSA. You can open the account and make a pre-tax payroll deduction up to the annual maximum limits; another option is to add money in post-tax.
In 2020, the annual contribution limit is $3,550 for those with self-only coverage and $7,100 for those on family coverage. For 2021, the annual contribution limits are $3,600 for self-only coverage and $7,200 for family coverage.
Does my employer “seed” the account?
If your employer offers an HSA as part of its benefits package, it may offer to “seed” your account. That means your employer deposits money into your account as part of your benefits. The only caveat is that it counts toward your annual contribution limit.
Another perk some employers offer is wellness incentives you can earn to build up your account.
Ask your HR or benefits administrator for more information on employer seeding and wellness program incentives.
How can I use the money?
A Health Savings Account can be used for a lot of IRS approved out-of-pocket healthcare expenses. These can include co-pays, deductibles, over-the-counter and prescription medications, dental visits and procedures, eye exams and eye wear, birth control and family planning items, vaccinations, and a lot more.
You can view a list of eligible HSA expenses here. If you have any questions, ask your benefits administrator.
What happens if I don’t spend the HSA money?
If you do not spend all of your HSA money, the remaining funds stay in your account for later use. There is no “use-it-or-lose-it” rule like with a Flexible Spending Account (FSA).
Who can use the account?
You can use your HSA for yourself, your spouse, and other people you claim as a dependent on your taxes. You could not use it for a roommate, cousin, or parent, unless that person is listed as your legal dependent.
How much do I need in my HSA to begin investing?
One of the best ways to grow your HSA money is to invest. Each HSA service provider has a different rule on the minimum balance before you can begin investing; some have no minimum requirements, while others may require you to have $500 or $1,000 before you can begin investing. Talk to your benefits administrator or check your Summary Plan Description (SPD) for more information.
Does the account come with a debit card?
Many HSA plans come with a debit card that can be used just like a regular banking card. You can pay for items and services at the doctor’s office, pharmacy, online, or other places that accept card payments.
If your plan does not come with a card, you will have to file a claim with your benefits administrator for reimbursement. Always keep your receipts – even if you have a debit card – so that you can verify your purchases.
Knowing this information before you open an HSA can help you with your decision. It’s your money and your health, so make the most of it!
Captain Contributor is a year-round employee education and engagement program sponsored by DataPath, Inc.