With all the hoopla about health care over the last several months, you may have heard the term “Health Savings Account” tossed around here and there. In short, Health Savings Accounts (HSAs) are tax-exempt accounts available for people in certain high-deductible health plans. Since people with high deductible health plans by definition incur significant out-of-pocket expenses before the insurance kicks-in, HSAs allow them to plan ahead by socking away money in a tax advantaged way.2 Think of it as having a savings account for your medical needs.
As we will cover below, however, HSAs are not for everyone, and there are other features you should understand if you’re exploring them as part of your plan. Here are five of those features:
- High Deductible Health Plan Requirement – “conditions apply,” but generally speaking individuals must have deductibles of at least $1,300 and families must have deductibles of at least $2,600 to qualify for an HSA. If your deductible is below that amount, or if you a part of a group plan, you most likely will not be able to open a HSA.1
- Tax Benefits – there are many. Not only are contributions made to HSAs tax-deductible, withdrawals made for qualified medical expenses are tax-free. Such qualified expenses include doctor visits, surgery, prescriptions, and physical therapy.2
- Contribution Limits – According to the IRS, if you have self-only high deductible health plan (HDHP) coverage, you can contribute up to $3,400 per year. If you have family HDHP coverage, you can contribute up to $6,750. For some, that could mean having a significant tax deduction each year.1
- Reporting to the IRS – The IRS does not require you to obtain permission or authorization to open a HSA. You set up a HSA with a trustee, which can be a bank, insurance company, or other institution that has already been approved by the IRS to offer the accounts. That bank or institution should send you a report each tax year with your contributions and withdrawals for the year, so you can then report that activity to the IRS.1
- Not All HSAs are Created Equal – hundreds of banks, credit unions, and several insurance companies offer HSAs. So, which one to choose? Shouldn’t they all be the same? Actually, they are not. Some HSAs have annual fees, pay different interest rates, and others offer investment options within the HSAs with varying fees and investment choices. If you are considering an HSA, it makes sense to shop around to see which option makes the most sense for you and your family. Investors Business Daily made this helpful ranking and comparison of several HSA plans, and Consumer Reports referenced an online HSA search tool, found here, which lets consumers compare up to 350 HSA plans.2
Thinking about Opening an HSA but Unsure Where to Start?? Call Us.
WrapManager does not offer HSA plans, nor would we necessarily recommend one versus another. But we are here to help you in any way we can, and often times just talking through the options can help provide clarity for what may be a good way forward. Wealth Managers at WrapManager are happy to be your sounding board for this potential decision, and we can help you review your options. Simply give us a call at 1-800-541-7774 or send an email to wealth@wrapmanager.com with your question, and we can go from there.
Sources
1. IRS
