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The Advantages of HSAs. By John Jastremski

February 16, 2015

Health Savings Accounts offer you tax breaks & more.

Why do people open up Health Savings Accounts in conjunction with high-deductible insurance plans? Well, here are some of the compelling reasons why younger, healthier employees decide to have HSAs.

#1: Tax-deductible contributions. These accounts are funded with pre-tax income. Your annual contribution limit to an HSA depends on your age and the type of insurance plan you have in conjunction with the account. For 2015, limits are set at $3,350 (individual plan) and $6,650 (family plan). If you are older than 55, those limits are nudged $1,000 higher.1,2

#2: Tax-free growth. Under federal law, the money in an HSA grows untaxed. Some HSAs even have investment options.3

#3: Tax-free withdrawals (as long as withdrawals pay for health care costs). Distributions out of an HSA are tax-free as long as they are used to pay qualified health-care expenses. The is the federal tax treatment, and most states treat HSA distributions in like fashion.3

Add it up: an HSA lets you avoid taxes as you pay for health care. Additionally, these accounts have other merits.

You own your HSA. If you leave the company you work for, your HSA goes with you – your dollars aren’t lost.4

Do HSAs have underpublicized societal benefits? Since HSAs impel people to spend their own dollars on health care, the theory goes that they spur their owners toward staying healthy and getting the best medical care for their money.

Additionally, the HSA is sometimes called the “stealth IRA.” If points 1-3 mentioned above aren’t wonderful enough, consider this: after age 65, you may use distributions out of your HSA for any purpose, although you will pay regular income tax on distributions that aren’t used to fund medical expenses. (If you use funds from your HSA for non-medical expenses before age 65, the federal government will hit you with a 20% withdrawal penalty in addition to income tax on the withdrawn amount.)2,3

How about the downside? HSA funds don’t pay for all forms of health care. You also can’t use HSA funds to pay for a Medigap policy or Medicare supplemental insurance, in case you are wondering about such a move. In the worst-case scenario, you get sick while you’re enrolled in an HDHP and lack enough money to pay medical expenses.5,6

Even with those caveats, younger and healthier workers see many tax perks and pluses in the HSA. If you have a dependent child covered by an HSA-qualified HDHP, you can use HSA funds to pay his or her medical bills if that child is 18 or younger. (This also holds true if your dependent child is a full-time student 23 or younger or is permanently and totally disabled.)2

Who is eligible to open up an HSA? You are eligible if you enroll in a health plan with a sufficiently high deductible. For 2010, the eligibility limits are a $1,300 annual deductible for an individual or a $2,600 annual deductible for a family.3

Your employer may provide a match for your HSA. A full or partial match (or other form of employer contribution) can occur. Sometimes this is contingent on an employee’s participation in a wellness program.3 

In a recent Fidelity survey, 62% of Americans confessed they didn’t understand how HSAs worked. As more and more employers are offering them to employees, perhaps people will become more knowledgeable about them – and their intriguing features.3

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – health.usnews.com/health-news/health-insurance/articles/2014/10/21/health-care-costs-expected-to-rise-in-2015-are-you-ready [10/21/14]

2 – shrm.org/hrdisciplines/benefits/articles/pages/2015-hsa-limits.aspx [4/24/14]

3 – tinyurl.com/lqw4pkq [10/11/14]

4 – forbes.com/sites/investopedia/2012/06/19/comparing-health-savings-and-flexible-spending-accounts/ [6/19/12]

5 – irs.gov/uac/Affordable-Care-Act:-Questions-and-Answers-on-Over-the-Counter-Medicines-and-Drugs [1/9/14]

6 – bcbsm.com/index/health-insurance-help/faqs/plan-types/health-spending-accounts/how-to-use-hsa.html [6/19/12]

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Verizon, Chevron, Hughes, Merck, Pfizer, Glaxosmithkline, Bank of America, Northrop Grumman, Raytheon, ExxonMobil, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

John Jastremski is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

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