A Tax-Free Rainy Day Fund For Your Family’s Medical Expenses
There are many financial and practical benefits of having a health savings account (HSA) in Arizona. These increasingly popular plans, which are an option for participants in a high deductible health plan (HDHP), may not be suitable for everyone. Still, those who establish an HSA as part of their health insurance program gain greater control over their health care costs and reap significant tax advantages, among other upsides.
If you are enrolled in a high-deductible health plan and are figuring out whether an HSA fits your individual or family’s needs and budget, here is what you need to know about health savings accounts.
What Is An HSA and How Does It Work?
To understand the benefits of having a health savings account, you first need to know what these accounts are and how they work.
An HSA is a specific savings account which allows those on the account to set aside pre-tax money to pay for certain “qualified medical expenses.” Eligible expenses you can pay with funds you deposit into your HSA include almost all costs relating to your health care, including treatments, medications, doctor visits, dental care, and hospital stays. You can also use HSA contributions to pay for health insurance expenses such as deductibles and copays, transportation expenses you may incur to receive care, and amounts paid for qualified long-term care services.
As noted, only participants in an HDHP can establish and contribute to an HSA. While some health insurance companies offer HSAs for participants in their HDHPs, most banks, credit unions, and other financial institutions also allow you to open an HSA.
The Internal Revenue Service limits the total amount you can contribute to an HSA each calendar year, and the maximum amount generally increases each year. For 2023, those with individual coverage can contribute up to $3,850 to their HSA, while those with family coverage can put $7,750 into their HSA. Exceeding the annual contribution limit can lead to tax penalties of up to 6% on excess contributions in the year.
Unused HSA funds roll over into the following year, so you can use any amounts you don’t spend on healthcare expenses this year for costs incurred next year or the year after.
Related: The Pros and Cons of High Deductible Health Plans in Arizona
Tax Advantages Are One Of The Biggest Benefits of Having a Health Savings Account
One of the most significant benefits of having a health savings account is its tax advantages. All contributions made to an HSA (up to the annual limit) are tax-deductible, meaning they can reduce an individual’s taxable income and provide immediate savings.
Furthermore, any interest earned on HSA funds grows tax-free, allowing the account to grow and accumulate wealth over time.
And finally, withdrawals for qualified medical expenses are tax-free, meaning that every dollar that goes in and out of an HSA stays out of the IRS’ hands.
HSAs Provide Peace of Mind and Greater Control Over Healthcare Costs
Other benefits of having a health savings account include having greater control over healthcare costs. By contributing to an HSA, you can build up funds to cover your family’s current and future medical expenses.
Having a “rainy day” fund on hand to pay for health care expenses provides peace of mind and a sense of autonomy that comes from knowing that you can make health care choices based on your needs – not your financial constraints.
HSAs Offer Savings and Investment Opportunities
HSAs offer an excellent opportunity for long-term savings and investment growth. As noted, HSA funds roll over from year to year (as opposed to flexible spending accounts (FSAs), which are subject to a “use it or lose it” policy).
This ability to roll over unused contributions is one of the most significant benefits of having a health savings account. By contributing the maximum amount each year but not withdrawing that entire amount for qualified expenses, you can build a nest egg for future medical expenses or even retirement healthcare costs.
Additionally, some HSAs offer investment options, meaning the amounts you contribute can grow over time.
HSAs Are Portable Even If You Change Jobs
You own your HSA and can take it with you if you change jobs or retire. While you can only contribute to an HSA while enrolled in an HDHP, you can retain your HSA and all funds indefinitely, even if you are no longer enrolled in such a plan. (Some restrictions on the distribution of the funds may apply, depending on your financial institution.) If that is not a significant benefit of having a health savings account, we don’t know what is.
Speak With An Arizona Health Insurance Expert Today
If you need help weighing the benefits of having a health savings account in connection with a high-deductible health plan, an experienced Arizona health insurance broker can help you and your family get the coverage you need at a cost that fits your budget.
At Arizona Health Insurance Experts, we connect Arizonans with the state’s most extensive collection of independent insurance agents and brokers. This partnership delivers the exceptional customer experience you deserve, along with the family health insurance coverage you need. Find a broker near you today.
