Health Savings Account (HSA) FAQs: Everything You Need to Know
A Health Savings Account (HSA) is a powerful tool that helps individuals save for medical expenses while enjoying tax advantages. If you're considering opening an HSA or want to maximize its benefits, here are some of the most frequently asked questions to guide you.
1. What is an HSA?
An HSA is a tax-advantaged savings account designed for individuals with a high-deductible health plan (HDHP). The funds in the account can be used for qualified medical expenses, and contributions, earnings and withdrawals for medical purposed are tax-free.
2. Who is eligible to open an HSA?
To qualify for an HSA, you must:
• Be enrolled in an HDHP
• Not be covered by any other non-HDHP insurance (except certain exceptions like dental and vision plans)
• Not be enrolled in Medicare
• Not be claimed as a dependent on someone else's tax return
3. What are the contribution limits for an HSA?
• Individuals: $4,300
• Families: $8,550
• Catch-up contribution (for those 55 and older): An additional $1,000
4. What expenses are covered under an HSA?
• Doctor visits and hospital stays
• Prescription medications
• Dental and vision care
• Medical equipment
• Mental health services
5. What happens if I use HSA funds for non-medical expenses?
If you withdraw HSA funds for non-qualified expenses before age 65, you'll incur a 20% penalty plus income tax. After age 65, non-medical withdrawals are subject to income tax but no penalty.
6. Can HSA funds be invested?
Yes, many HSA providers allow you to invest your funds in stocks, bonds, or mutual funds to grow your savings tax-free.
7. What happens to my HSA if I switch jobs or retire?
HSAs are portable, meaning they stay with you even if you change jobs or retire. Once you turn 65, you can use HSA funds for any purpose without penalties, through non-medical expenses will be taxed as regular income.
8. Can I have both an HSA and an FSA?
Typically, you cannot contribute to both a Health Savings Account (HSA) and a Flexible Spending Account (FSA) simultaneously, except for a limited-purpose FSA (used for dental and vision expenses only). Of course, because Dependent Care FSAs aren't connected to medical expenses, they are not impacted by HSA contributions.
9. Do HSA funds expire?
No, HSA funds roll over year to year. Unlike FSAs, there is no "use it or lose it" rule, so your savings can grow over time.
10. How do I open an HSA?
You can open an HSA through a bank, credit union, insurance company, or other financial institutions. Many employers also offer HSAs as part of their benefits packages.
Final Thoughts
An HSA can be an excellent way to save for medical expenses while benefiting from tax advantages. Understanding the eligibility requirements, contribution limits, and investment options can help you make the most of your HSA.
Still have questions? Contact your Rose Street Advisors team to see if an HSA is right for you! If you are not a current client of Rose Street Advisors, please feel free to contact us at 269-552-3200 or contact@rosestreetadvisors.com to speak to someone