What are HSAs?


After many years of building up their savings account balance, a wife tells her husband they have finally saved enough money to buy what they started saving for in 1999. Her husband says, “You mean a brand-new Cadillac?” The wife says, “No, a 1999 Cadillac.” Yep, saving money can sure be challenging – but an HSA can be a great solution! What is an HSA? Let me tell you all about them.

HSA Basics

A Health Savings Account (HSA) lets you set aside money tax-free to pay for eligible healthcare products and services. Anyone can contribute to your account, and it offers three tax-saving benefits. The best part may be that you own the account funds for life!

Eligibility Requirements

To open an HSA, you must be enrolled in a health insurance plan with a high deductible. (The deductible is how much you must pay before the insurance company starts paying.) For the 2024 plan year, the deductible has to be at least $1,600 for a policy with individual coverage or $3,200 for family coverage to be eligible to open or contribute to an HSA. There are a few more restrictions:

  • No other health coverage (with some exceptions – check with the IRS or your HR department)
  • Can’t be enrolled in Medicare
  • Can’t be claimed as a tax dependent on anyone else’s tax return

Contributions and Limits:

There is a maximum HSA contribution limit each year. For 2024, a single person’s account can receive up to $4,150 from all contributors (including you, your employer, or anyone else) or up to $8,300 if you have family coverage. And even though I’m Captain Contributor, I’m sorry, but no, I will not be a “contributor” to your HSA account. See what I did there? HA!

Benefits of HSAs

HSAs help participants save on taxes in three ways:

  • The money set aside into your HSA from your paycheck reduces your taxable income
  • Withdrawals from your HSA that pay for your eligible healthcare expenses are not taxable
  • Any interest or investment returns earned on your HSA balance are tax-free

Here’s something else that’s great about HSAs. You own the account, even if your employer contributes to it. That means that, unlike other benefits tied to your employer, you take the HSA account, and all the money in it, with you when you leave.

Even though you can only use HSA funds to buy certain products and services, the list of what you can buy is long, and some items may even surprise you!

Last but not least, HSAs have a retirement option. Once your account balance grows to a certain level (called the “investment threshold”), you can start investing part of your balance for future use, such as for retirement. So, if you’re trying to build financial security in retirement, HSAs can help. (What? You’re not saving for a 1999 Cadillac????)

I hope I’ve answered the question “What is an HSA?” Check out my other HSA-related blogs, and sign up to be the first to read my new ones, to learn even more about this powerful benefit.

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