Why Health Savings Accounts (HSAS) are a Healthy Way to Save

Blog

October 14, 2017

As more companies offer less expensive, high-deductible health plans to their employees, more and more people are eligible for Health Savings Accounts (HSAs) — but only a fraction of folks know what HSAs are, how to use them, where to set them up, or why they should get an H.S.A. in the first place!

At Security National Bank of South Dakota, we're here to help you sort it all out.

Set up an appointment to talk about HSAs today »

If you are enrolled in a high deductible health insurance plan, it is typically less expensive up front because you're taking on more of the financial responsibility before your insurance actually kicks in. This is why it's important to also set aside money in a Health Savings Account, to help offset out-of-pocket medical expenses that your insurance won't cover.

There are several benefits to HSAs:

1. contributions to your h.s.a. reduces taxable income.

Taken as a pre-tax distribution from your paycheck or deducted from your taxable income on your taxes, HSA contributions make it easier to save money and pay for qualified medical expenses.

2. withdrawals from your h.s.a. are also tax-free.

As long as the money is used for a qualified medical expense (the IRS further outlines those here), you won’t pay taxes on those funds. You can also use the funds for non-medical expenses, but at a steep cost — you’ll not only be charged the taxes owed on the amount withdrawn, but you’ll also incur a 20 percent penalty unless you are over the age of 65. Once you reach retirement age, the non-medical expense penalty goes away, but not the tax obligation.

The short story? Make sure you use your H.S.A. funds for actual medical expenses.

3. HSA funds roll over from year to year.

Unlike a Flex Spending Account (which people with low deductible health plans sometimes use), any H.S.A funds you don't use this year will always roll over to the next. As long as you have an active high-deductible health plan, you can keep contributing to your HSA. If a time comes when you no longer qualify for an HSA, the account remains intact and available for your medical expenses; you just can’t contribute more money while you aren’t enrolled in a high-deductible plan. You will never lose what you contribute!

4. H.s.A. funds are placed in an interest-bearing account.

Not only do H.S.A. funds gain interest, they are also not invested or subject to a changing stock market (unlike 401K retirement plans). At SNB of South Dakota, all HSA accounts are interest-bearing at highly competitive rates, which can help bolster your saving power.

5. HSA funds are available to you, your spouse, and your dependents.

HSA funds can be used by any family member who qualifies as your tax dependent, even if they aren’t covered under your plan. While their expenses won’t be counted toward your deductible, you can still reap the benefits of the additional savings of the HSA.

6. H.s.A. funds are easy to access.

Your HSA account is an actual savings account. It bears interest, and it also comes with its own debit card and bank statement, making it easy to access the funds when you need them. Just remember: an HSA is also a self-auditing account, which means you must keep all receipts and account for all transactions for tax purposes.

7. an h.s.a. can supplement retirement savings.

Being enrolled in a qualified high-deductible plan and actively contributing to an HSA can be a smart move for your retirement planning, especially if you are currently healthy and make minimal withdrawals. Since you never lose the funds in the account, and since your medical expenses will likely increase as you age, having additional funds in an HSA will allow you to stretch your other retirement savings a bit further. Also, once you turn 65, your HSA funds can be used penalty free to pay for Medicare supplements or long-term care premiums.

8. an H.s.a. offers substantial saving opportunities.

While HSAs never expire, they do have annual contribution limits set by the IRS. In 2018, the maximum HSA contribution for a family is $6,900; for individuals, it is $3,450. If you are 55 and over, you can make a $1,000 additional catch-up contribution.