Have you ever asked yourself “Should I participate in my company’s Health Savings Account?” If the answer is yes, you are not alone! If your company also offers a Health Savings Account (HSA), and you’re contemplating whether it’s beneficial to contribute to it, this blog is for you! An HSA is a tax-advantaged savings account that allows you to set aside pre-tax money for qualified medical expenses. To help you make an informed decision about participating in your company’s HSA, consider the following factors:
- Eligibility: Check if you’re eligible to contribute to an HSA. Participation requires enrollment in a high-deductible health plan (HDHP). If you need assistance verifying your eligibility criteria, we encourage you to contact your human resources director or benefits coordinator.
- Employer Contributions: Some organizations offer matching contributions to employees’ HSAs, similar to a 401(k) match. If your company provides matching contributions, participating in the HSA can be an excellent way to take advantage of this benefit.
- Investment Opportunities: Certain HSAs offer investment options once your account balance reaches a certain threshold. Investing the funds can potentially grow your savings over time. According to Employee Benefit Research Institute, only 9% of health savings account owners invest a portion of their funds and the other 91%, hold cash.1 If investing is available to you, we encourage you to explore your options.
- Savings for Medical Expenses: HSAs are designed to help you save for medical expenses. The expenses could include doctor visits, medications, medical equipment, and dental and vision care for you, your spouse and any dependents. If you anticipate higher healthcare costs in the future, having an HSA can provide a dedicated fund to cover those expenses—an emergency or rainy-day fund solely meant for significant medical costs.
- Tax Advantages: Contributions to an HSA are made with pre-tax dollars, reducing your taxable income. The funds in your account can grow tax-free, and withdrawals for qualified medical expenses are also tax-free.
- Portability: Unlike Flexible Spending Accounts (FSAs), HSAs are portable, meaning the account remains yours even if you change employers or retire. This allows you to continue using the funds for qualified medical expenses.
However, there are also some considerations to keep in mind:
- High Deductible Health Plan: If you have a high-deductible health plan, be prepared to cover more of your medical expenses out of pocket until you reach the deductible limit.
- Limited Use: HSAs can only be used for qualified medical expenses. Withdrawing funds for non-medical purposes before age 65 may result in taxes and early withdrawal penalties.
- Contribution Limits: HSAs have annual contribution limits. In 2023, individuals under 55 can contribute up to $3,850 to their HSA account ($7,750 for a family). Those aged 55 or older can save an extra $1,000 ($4,850/$8,750). In 2024, these amounts increase to $4,150/$8,300 ($5,150/$9,300 for those aged 55 & up).
Ultimately, the decision to participate in your company’s HSA depends on your individual financial situation, health needs, and long-term savings goals. If you’re uncertain about what’s best for you, consider consulting a financial advisor for personalized advice based on your specific circumstances. At Prime Capital Investment Advisors, we are here to help you achieve your life’s ambitions!
Contact us today at 800.493.6226
Authored by Jasen Mangrum
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