Health Savings Accounts Offer Multiple Advantages

When most people are presented with health insurance plans—likely through their employer as part of a benefits package—they are often given a couple options to choose from. Their choice depends on various personal factors, such as their current health status, coverage needs (individual vs. family), access to preferred doctors and hospitals, and their ability to pay premiums, deductibles and out-of-pocket costs.

An attractive feature of high-deductible health plans (HDHPs) is the eligibility to set up a Health Savings Account (HSA).

An HSA is a savings account designed to help people with HDHPs save for current and future medical expenses while providing significant tax benefits. HSAs are only available to individuals enrolled in qualifying HDHPs.

The individual, employer or both can contribute money to an HSA up to an annual limit set by the IRS. For 2024, the limit is $4,150 for individuals and $8,300 for families. There are no required minimum distributions.

Benefits of an HSA

HSAs offer several benefits:

• Triple tax advantage: First, contributions to an HSA are tax-deductible; and second, withdrawals for qualified medical expenses are tax-free. The third advantage is that funds in the account grow tax-free.

• No “use it or lose it” rule: Unused funds roll over year to year.

• Portability: Individuals keep the account even if they change jobs or insurance plans.

• Funds available immediately: The full year’s contribution amount is available immediately.

• Flexibility in using funds: Funds can be used for a wide range of qualified medical expenses, including deductibles, copayments and coinsurance.

• Long-term savings vehicle: Many HSAs allow investments in stocks, bonds, or mutual funds to grow medical savings.

• Another source of retirement income: HSAs can serve as an additional retirement account after age 65. In fact, individuals over age 55 are allowed to contribute an additional $1,000 annually as a catch-up provision. After age 65, funds can be withdrawn for non-medical expenses without penalty but are subject to income tax. For estate planning, unused funds can be passed on to a beneficiary.

HSAs vs. FSAs

Health Savings Accounts (HSAs) can be confused with Flexible Spending Accounts (FSAs), but there are several key differences. One of the most significant differences is that funds in an FSA are forfeited at the end of the year, while unused funds in an HSA can be rolled over year to year. An HSA is owned by the individual and the account moves with them from job to job or a change in health insurance plans; FSAs are owned by the employer and individuals typically lose these funds at the termination of employment.

With both accounts, contributions are made pre-tax, but there is no growth potential in an FSA, which is designed for current-year expenses only. Money in an HSA is available immediately, whereas money in an FSA is available when the amount is funded.

An HSA is not for everyone

HSAs are typically chosen by individuals who meet certain criteria and find the benefits align with their health and financial situation. These individuals tend to be high-income earners who are healthy overall, want more control of their healthcare spending and will benefit from the tax advantages.

Mountain America Credit Union offers robust and comprehensive benefit options for our team members to support their wellbeing and provide opportunities to thrive. An HSA, featuring a company contribution, is available with some medical plans. Join our talent community to stay informed on open roles at the credit union.