Health Savings Account (HSA)
When you are enrolled in a Qualified High Deductible Health Plan (HDHP) and meet the eligibility requirements, the IRS allows you to open and contribute to an HSA Account.
Plus, you get extra tax advantages with an HSA because:
- Money you deposit into an HSA is exempt from federal income taxes.
- Interest in your account grows tax free; and
- You don’t pay income taxes on withdrawals used to pay for eligible health expenses. (If you withdraw funds for non-eligible expenses, taxes and penalties apply).
- You have a choice of investment options which earn competitive interest rates, so your unused funds grow over time.
Are you eligible to open a Health Savings Account (HSA)?
Although everyone can enroll in the Qualified High Deductible Health Plan, not everyone is eligible to open and contribute to an HSA. If you do not meet these requirements, you cannot open an HSA.
- You must be enrolled in a Qualified High Deductible Health Plan.
- You must not be covered by another non-QHDHP health plan, such as a spouse’s or guardian’s PPO plan.
- You are not enrolled in Medicare (any part). If you participate in the HDHP/HSA, as you prepare to transition to Medicare, you should consult with a Medicare specialist regarding when you should stop contributing to the HSA due to the Medicare look back period and requirements.
- You are not in the TRICARE or TRICARE for Life military benefits program.
- You have not received Veterans Administration (VA) benefits within the past three months.
- You are not claimed as a dependent on another person’s tax return.
- You are not covered by a traditional health care flexible spending account (FSA). This includes your spouse’s FSA.
(Enrollment in a limited purpose health care FSA is allowed)
2024 HSA Contributions: You can contribute to your HSA on a pre-tax basis through payroll deductions up to the IRS statutory maximums. The IRS has established the following maximum HSA contributions for the 2024 tax year:
What are the benefits of an HSA?
An HSA is both a means of covering qualified healthcare expenses and a savings vehicle that can help you cover both medical and non-medical expenses in retirement. If you make a contribution with post-tax funds, you can deduct these contributions from your gross income on your tax return. Where HSAs really shine is their triple-tax advantage.
Here’s how it works:
• HSA contributions are pre-tax
• There’s no tax on interest earned or growth through investment
• There’s no tax on HSA withdrawals for qualified health expenses