Recent changes to health savings accounts (HSAs) make them much more attractive. These accounts double as health insurance and a retirement account. Previously, they only allowed smaller contributions each year, but the limit has been raised for 2024.
The Savings Element of HSAs
A health savings account gives you the opportunity to save money and earn interest tax-free. The money still in the account at year’s end rolls over from one year to the next, unlike a flexible savings account (FSA), which loses all remaining funds at year’s end.HSAs Must Be Attached to a High-Deductible Health Plan (HDHP)
One of the best HSA benefits is the lower premiums. They are lower because you will pay a higher deductible when there is a medical need. The minimum out-of-pocket deductible amount for an HDHP in 2023, says Finance. Yahoo, is $1,500 for an individual and $3,000 for a family. In 2024, individuals must have a minimum deductible of $1,600, and families must have a minimum deductible of $3,200. In addition, most HDHPs also require a co-pay. You will also pay an additional 10–20 percent copay whenever you receive medical care.The Medical Advantage of an HSA
An HSA gives you some advantages over traditional health insurance plans. It helps you save money in advance for potential medical needs and earns interest. You also save money in the cost of premiums because they are lower.If the money is unused, the account continues to build interest toward your retirement. As the contributions and interest build, it will enable you to pay your medical bills more readily because it means paying less money out of pocket.
An HSA health insurance policy will also give you more coverage than a standard health insurance policy. Even some elective options may be available through your plan that other policies do not cover. Some over-the-counter products, such as OTC medicines and menstrual care products, may also be covered even when not prescribed.
Contribution Limits
Like other retirement accounts, there is a limit to the size of the contributions you can make each year. In 2023, the maximum contribution an individual can make to an HSA, according to MyFederalRetirement is $3,850, and a family can contribute up to $7,750. In 2024, these amounts are much higher, allowing individuals to contribute $4,150 and families up to $8,300.If the HSA is offered by an employer and not as private health insurance, the employer can also make contributions. The limits remain the same, and the total contributions cannot exceed the limits without penalties. People 55 and older can contribute an additional $1,000, and couples up to $2,000 annually.
Options to Invest Money in HSAs
Any money in an HSA can be invested, allowing you to increase your interest and grow your money faster. Most companies offering HSAs enable you to invest some or all of your money in stocks, mutual funds, bonds, Treasurys, exchange-traded funds (ETFs), and more. Some companies may require that you have a minimum amount before you can invest.Penalties for Non-Medical Withdrawals
Because it is an account for the primary purpose of covering your medical expenses, there is a penalty for withdrawing money for non-medical expenses. Withdrawals for non-medical purposes before you reach 65 will require you to pay taxes on it, and you will have to pay an additional 20 percent tax penalty.Things to Know About HSAs
HSAs are not protected by the Federal Deposit Insurance Corporation (FDIC). Instead, the FDIC reveals, the insurance is based on the agency providing the funds, the insured depository institution (IDI). The insurance may depend on whether or not the account can be considered a revocable trust or as a single account. In a revocable trust, coverage is based on the number of beneficiaries named, and in a single account with no beneficiaries named, the coverage is up to $250,000.Qualifications for an HSA
Before you can get a tax-deductible health savings account, you will need to meet some qualifications. There are four of them:- You must be insured by a high-deductible health plan.
- You do not have any other health care coverage except the HDHP.
- You are not receiving benefits from Medicare.
- You cannot be claimed as a dependent on someone else’s tax forms.
The Best Candidates for an HSA
Not everyone should get an HSA. Because of the higher deductible, the best candidates are those with better incomes. It is also best if you and all family members are in good health—or you may not have any money left for retirement.Ideally, the best way to use a health savings account is to not use it at all—unless necessary. Let the account build interest and save it for retirement so you have the money for your medical bills in your senior years.
