A Health Savings Account (HSA) is like a personal savings account you can use on qualified health care expenses for you and your family. Take a moment to review what an HSA is, the eligibility terms, and determine if you can take advantage of an HSA. Once you have a better understanding of this helpful savings tool, you can research which financial institutions have the best perks. Some offer HSAs without some of the commonly associated fees.
What is an HSA?
A Health Savings Account, or HSA, is a tax-advantaged medical savings account available to taxpayers who are enrolled in a special health insurance plan called a High-Deductible Health Plan, or HDHP. Established in 2003 as part of the Medicare Prescription Drug Improvement and Modernization Act, HSAs allow those with HDHPs to pay for current healthcare expenses and save for future expenses on a tax-favored basis.
You can contribute funds into your HSA at any time and your contributions are typically tax deductible come tax time. If your HSA is set up through your employer, you can opt to set up payroll deductions to contribute to your HSA on a pre-tax basis. An HSA doesn’t have a “use-it-or-lose-it” rule; any unused funds (and potential earnings) in your HSA will roll over year to year.
Who can open an HSA?
To qualify for an HSA, you must be under the age eligible for Medicare and have a high-deductible health insurance plan. HSA contributions are typically tax-deductible before you turn 65 and become eligible for Medicare. Maxing out contributions, no matter how old you are, will help you save for medical expenses now and into retirement.
What makes an HSA a great option?
An HSA is triple tax advantaged, similar to a 401(k) plan. The funds are deductible when contributed to the account, it grows tax-deferred, and you can take it out tax free to use for qualified medical expenses.
Your account balance will grow tax-free. Any dividends earned are nontaxable.
Contributions can be made via payroll deductions or from your own funds. Those made via payroll deduction will be made on a pre-tax basis, meaning they will reduce your federal and state income tax liability.
Withdrawals for qualified medical expenses are tax-free.
Can an HSA help you save more for retirement?
If you’re eligible to open an HSA, you can begin setting aside funds to pay for potentially costly medical expenses you may face during retirement instead of using funds you set aside in a 401(k) or another savings account. If absolutely necessary, HSA funds can be spent on something other than qualified medical expenses, but there will be a 20% penalty and you will also pay income tax on those funds.
An HSA from General Electric Credit Union can make a great option for anyone interested in limiting their upfront health care costs and saving for future expenses. Before making any decisions regarding your health plan and an HSA, compare your options and review expected costs. As Cincinnati's Best Credit Union of 2021, there are many reasons to choose GECU for your HSA – no minimum to open or maintain and no monthly maintenance fee, to name a few! Credit union membership is open to anyone who lives, works, worships, or goes to school in the Cincinnati area.