Health Savings Accounts

HSAs are one of the most underutilized tax-effective strategies that you can implement. What is so great about them? They are often referred to as having a “triple tax benefit”. Contributions made to an HSA are tax-deductible and reduce your taxable income, grow in the account tax-deferred (similar to any regular retirement account), and the distributions that you take are tax-free if used for “qualified” medical expenses.

Unlike FSAs, they are not use-or-lose. The funds remain available year-to-year and stay with you if you leave your employer and all the way through retirement.  

Eligibility

An individual or family can open an HSA if they have a high deductible health insurance plan, which is defined as not less than $1,400 for self-only coverage or $2,800 for family coverage. In addition, the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) must not exceed $7,000 for self-only coverage or $14,000 for family coverage.

Contributions

For calendar year 2021, the annual contribution limit for self-only coverage is $3,600—up $50 from $3,550 in 2020. For family coverage, the contribution limit has been raised to $7,200—an increase of $100 from $7,100 for 2020. If you will be 55 or older by December 31, you can contribute an additional $1,000 for that year. This also applies to a spouse in their own account.

You can generally make contributions to an HSA for a given tax year during the calendar year all the way up to the normal filing tax filing deadline (typically April 15). 

Investment Options

HSA contributions can be invested in just about anything. If you are an employee and earn W-2 wages and your employer offers a high deductible health insurance plan that meets the criteria above, your employer will likely offer an HSA that allows you to invest in traditional investment options similar to your 401(K) if offered. If you are self-employed with no full-time employees, you have complete freedom to choose what you invest in and can structure an HSA to make it self-directed, in other words, invest directly in the stock market, real estate or syndications, private equity, hedge funds, etc.

What if you work for an employer and don't like the HSA options (or lack thereof) provided to you? You can simply open your own personal HSA and transfer the funds there periodically to invest them how you see fit.

When an HSA Is Not A Good Option

An HSA is generally a no-brainer, with two main exceptions. You would not want to consider an HSA if you or someone in your family has a pre-existing or chronic health condition that requires regular treatment and care, where you expect to incur significant annual medical expenses and need a lower deductible health insurance plan. In addition, some non-traditional health insurance plans that are not compliant with the Affordable Care Act (can exclude pre-existing conditions and have lifetime limits) may have lower premiums and be a better fit for you and your family. The ultimate decision boils down to a simple cost benefit analysis where you will need to evaluate what you think you will spend on health insurance considering all of the costs – premiums, deductibles, co-insurance, etc.

Next Steps for Action

If you have an HSA already, that's great! Evaluate your current investment options and see if you are satisfied with them based on their performance to-date and future potential. If you want to make changes don't wait. If you typically have taken annual distributions to pay for current medical expenses, you may want to rethink that strategy. If you need the money to help you financially, then use it, but if you have other funds available, you may want to leave them in the HSA since it will be most beneficial if you let it accumulate over time and use it later (typically in retirement) to self-insure for medical expenses and long-term care.

If you don't have an HSA-eligible high deductible health insurance plan just set one up. It's simple and free or low cost.

If you currently have a low-deductible plan, but your employer offers an HSA-eligible high deductible health insurance plan wait until your annual enrollment or special enrollment period (i.e.- lost previous coverage) to switch to the eligible plan and then sign up for the HSA.

Ready to get started?

Individuals who are NOT currently part of an emplopyer group: Open your HSA account today. 

For group plans, more information is required. Please Contact Us to get started.