Health Savings Account (HSA): Debunking the Myths

Posted in: Employee Benefits

To open and contribute to a Health Savings Account (HSA), you need to meet three simple criteria:

1. High Deductible Health Plan: You must have a High Deductible Qualified Health Plan (QHDHP).
2. Independent Tax Status: You can’t be claimed as a dependent on someone else’s tax return.
3. No Other Health Benefits: You can’t have other public or private health benefits like non-QHDHP insurance, Flexible Spending Account (FSA), Health Reimbursement Arrangement (HRA), or Medicare.

The Many Perks of Having an HSA

Having an HSA comes with several advantages:

1. Tax Deductions: You can get a tax deduction for your contributions or contribute pre-tax through your payroll if your employer allows it.
2. Tax-Free Growth: Your HSA can grow through interest or investments without annual taxes.
3. No “Use It or Lose It”: Unlike some accounts, your HSA funds don’t expire, and there’s no cap on growth, making it a valuable supplement for retirement.
4. Portability: You can keep your HSA even if you change jobs, medical coverage, become unemployed, move, or change your marital status.
5. No Income Limits: There are no income restrictions for HSA eligibility.
6. Flexible Funding: You can adjust your contributions within the annual limits set by the US Treasury Department.
7. Post-Retirement Use: After turning 65, you can use your HSA funds for any expenses, taxable at ordinary income rates.

HSAs vs. Retirement Plans

HSAs share similarities with retirement plans but offer some unique advantages:

1. Immediate Access: You can use HSA funds for qualified expenses at any time, tax-free.
2. Tax-Free Qualified Expenses: Money withdrawn for qualified expenses is 100% tax-free.
3. Post-Retirement Flexibility: After 65, you can use HSA funds for non-qualified expenses.

Common HSA Myths Debunked

1. Myth: HSA Tied to Health Insurance
2. Fact: While you need a QHDHP to have an HSA, the HSA is a separate tax-favored account.
3. Myth: Joint HSA Ownership
4. Fact: HSAs are individual accounts, even if the money is used for dependents or a spouse.
5. Myth: HSA Only for Medical Expenses
6. Fact: HSA funds can be used for various expenses, and after 65, for anything, with ordinary income taxes.
7. Myth: Income Limits for HSA
8. Fact: There are no income limits for HSA eligibility.
9. Myth: Losing HSA Without QHDHP
10. Fact: You can keep and use your HSA even if you no longer have a QHDHP.
11. Myth: HSA Only Through Employers
12. Fact: HSAs are owned by individuals, not employers. Employment isn’t tied to HSA eligibility.

In Summary, HSAs offer unique tax-saving opportunities and financial flexibility, making them a valuable tool for managing healthcare expenses and preparing for retirement. As healthcare costs rise and life expectancy increases, HSAs may become your best savings option. If you have questions, refer to our informational HSA guide [link] or contact us at jgreif@psafinancial.com.

Disclosure Information
* Tax penalties could be incurred for nonmedical expenditures if you are under the age of 65.

HSA’s are coupled with high-deductible health plans that may have higher out-of-pocket costs than other health plans.

About The Author

Jon Greif

Jon Greif, account executive, is a specialist in both employer-sponsored group insurance as well as individual, life and disability insurance. He joined PSA in 2000, where he was instrumental in developing the firm’s group insurance practice. Today, he represents hundreds of local and regional employers with benefits plans covering from 10 to 1,000 employees. Prior to joining PSA, Jon founded Insurance and Investment Solutions, Inc. and had a successful career as a life/disability producer for Berkshire Financial Group/Berkshire Life, where he specialized in business and estate planning for high income professionals and business owners.