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How to make the most of your Health Savings Account 

What we'll cover

  • What an HSA is

  • HSA contribution limits

  • How to maximize your HSA benefits

Health insurance can protect you from costly hospital bills and make unexpected emergencies less financially burdensome. But for many who are eligible for health insurance benefits through their workplace, the various plan options and their pricing structures can be overwhelming.

In recent years, one type of insurance policy that’s gained popularity is the high-deductible health plan (HDHP). These plans have higher deductibles and lower monthly premiums than traditional policies, meaning your monthly cost may be more affordable, but you’ll have to pay more out-of-pocket before insurance kicks in. In 2023, the IRS defines an HDHP as a plan with a minimum deductible of $1,500 for individuals and $3,000 for families. 

One of the benefits of HDHPs is the ability to open a Health Savings Account, or HSA, which aren’t available to individuals not covered by an HDHP. So, what makes an HSA a perk worth exploring? Let’s find out. 

What is an HSA?

An HSA is a tax-advantaged savings account that allows you to save and pay for qualified medical expenses that aren’t covered by an HDHP. Only those with HDHP coverage are eligible to contribute to Health Savings Accounts, making them a benefit exclusive to that type of health coverage. Neither contributions, earnings nor distributions put toward qualified expenses are taxed with an HSA, which can help you reduce your overall health-related costs each year. 

Qualified expenses may include deductibles, copays, coinsurance, dental and vision care services and other health care related costs, such as prescription drugs and over-the-counter medications. Eligible expenses can vary by plan, so be sure to review yours.

Opening an HSA

As mentioned, only those who are covered by an HSA-eligible HDHP can qualify for an HSA. If your employer provides health insurance benefits, you may have the option to enroll in an HDHP. You can also find HDHPs within the marketplace, which allows you to filter by those eligible for an HSA. 

HSAs are often paired with HDHPs, but depending on your plan, you might have to open one separately at a financial institution that offers them. 

Neither contributions, earnings nor distributions put toward qualified expenses are taxed with an HSA, which can help you reduce your overall health-related costs each year.

Do HSAs have contribution limits? 

Like a tax-advantaged retirement account, the IRS sets annual contribution limits for HSAs. For 2023, the limit for an individual with self-only coverage under an HDHP is $3,850. For families, the 2023 maximum contribution is $7,750. 

Not only do the funds in your HSA provide an extra cushion for regular or emergency health-related expenses, but HSA contributions can also lower your overall tax bill by reducing your taxable income. 

Plus, the savings in your HSA aren’t “use it or lose it” dollars — meaning any funds left in your account at the end of the year will roll over to the next. That means you can use the money later on, even if you’re no longer enrolled in an HDHP.

How to make the most of an HSA

Before opting for a HDHP and HSA, you should consider if it makes sense for you and your family financially and health-wise. If you expect to have a high amount of health-related costs throughout the year, a high-deductible plan may end up costing you more than other options. But if your regular health expenses are relatively low and you feel financially comfortable covering a higher deductible, if need be, then an HDHP and HSA combination may work for you. 

If you open an HSA, you can maximize your benefits by aiming to contribute the maximum amount each year. You’ll get the greatest tax advantages and don’t have to worry about losing any funds if you don’t use them immediately. In fact, you can invest the funds in your HSA to stretch your savings even further. Depending on the account, you may be able to direct your own investments or use tools that automatically manage your investments. 

The best part is that because HSAs are triple tax advantaged, any earnings you make will grow tax-free and can be withdrawn tax-free (if put toward qualified expenses). 

Save smart with an HSA 

When it comes to health insurance, you have lots of options to choose from. If you have a high deductible health plan, utilizing an HSA can provide you some great tax benefits now and for years in the future. 

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