Optimize Your HSA for Maximum Benefits
With the cost of medical care increasing, we’re all on the hunt for ways to save. If you have a qualified High-Deductible Health Plan (HDHP), a Health Savings Account (HSA) can help you budget for, and save money on, health care expenses.
So, how does an HSA savings account work, and how can you optimize your HSA? We’re sharing two simple steps to make the most of your HSA savings account.
What is an HSA?
A Health Savings Account can be opened through your employer or insurance agency if your health insurance plan is considered an HDHP. Some financial institutions, including Sunflower Bank, also offer HSAs. If your plan has a deductible of at least $1,400 for an individual or $2,800 for a family, it qualifies as an HDHP according to the IRS. Your Sunflower Bank banking professional can help you assess your HSA options.
You can deposit money pre-tax from your paycheck into your HSA, and then spend the funds on qualified medical purchases as needed. Think of it as an individual savings account for your health.
There are many medical expenses that qualify, including contact lenses, dental treatments and hospital services. Find a full list of qualifying expenses in IRS Publication 502, Medical and Dental Expenses.
What are the Benefits of an HSA savings account?
The magic of an HSA lies in its tax advantages.
Since HSAs are typically paid pre-tax through payroll deductions, they are not subject to income tax, including most state income taxes. If you contribute to your HSA using after-tax dollars, you can deduct those contributions from your gross income when you file your tax return. This may lower your tax bracket.
When it comes time to use your HSA funds, you can withdraw money for qualified expenses without tax implications. Likewise, earnings on the money in your HSA are tax-free. Paying for qualified expenses with your debit card is one convenient way to use your HSA funds. If you’ve selected to support the school of your choice through our ABC Program, your school will also benefit when you use your debit card for HSA qualified expenses.
All money left in your account at the end of the year rolls over to the next year. This offers you flexibility and helps you save for costly, unexpected medical expenses. If you change employers or health insurance plans, your HSA is yours and will transfer with you. The funds in your HSA savings account are also available after you retire.
How Do I Optimize My HSA?
If you have an HDHP, you’ll need to select and enroll in an HSA separately to get started. For more information on opening an HSA, visit HealthCare.gov.
Once you’ve selected the best HSA for you, there are two simple steps you can take to fully optimize your account:
1. Contribute the maximum amount to your HSA each year.
For 2023, if you have self-only HDHP coverage, you can contribute up to $3,850. If you have family HDHP coverage, you can contribute up to $7,750.
2. Allow your pre-tax HSA dollars to grow.
Since earnings on your HSA dollars are typically tax-free, it’s beneficial to leave your funds in your HSA for as long as possible. Spend wisely on health care. Pay for your medical expenses out-of-pocket when you can, and let your HSA continue to grow. By investing your HSA in a portfolio, you can increase its growth opportunities – but this also comes with the risk of losing your principal.
An HSA can serve as a powerful tool in your financial tool belt. Due to its tax advantages and growth capabilities, a Health Savings Account can be a beneficial and convenient option for those with an HDHP.
For more information on the benefits of an HSA and how you can optimize your account, contact one of our banking professionals.
This article contains general information only. Sunflower Bank and First National 1870 are not, by means of this article, rendering accounting, financial, investment, legal, tax, or other professional advice or services. We suggest you consult your personal tax or legal advisor before making tax or legal-related investment decisions.