Health Savings Account
A Health Savings Account is like a “medical 401(k).” It’s a tax-advantaged account you can dip into anytime to pay for qualified out-of-pocket medical, dental, and vision expenses. Or, let it build to complement your retirement savings. You own the account, and funds carryover year-after-year.
HSAs have an annual contribution limit. While you must be enrolled in an HSA-eligible plan to contribute to your HSA, you can always spend your HSA funds on qualified medical expenses.
The 2024 IRS contribution limit for an individual is $4,150 and $8,300 for a family. Those age 55 or older can contribute an additional $1,000.
Because an HSA offers potential tax savings, federal tax law imposes strict eligibility requirements for HSA contributions. HSA eligibility is determined on the 1st of each month.
To enroll in (and contribute funds into) an HSA, and individual must:
- Be covered by an HSA-eligible High Deductible Health Plan (HDHP). For 2024: $1,600 individual/$3,200 family minimum deductible.
- Not be covered by any other health coverage (only the HDHP).
- Not be enrolled in Medicare.
- Not be eligible to be claimed as a dependent on another person’s tax return (even if that person doesn’t claim you as a dependent).
Note: You cannot contribute to an HSA and have a general purpose FSA at the same time.
Qualified Medical Expenses
The list of reimbursable medical, dental, and vision costs is surprisingly broad, defined by the IRS in Publication 502. These are just some examples:
- Acupuncture
- Addiction Treatment
- Ambulance
- Bandages
- Birth Control Pills, Vasectomy
- Breast Pump
- Capital Expenses (like door ramps)
- Chiropractor
- Dental Treatment
- Disabled Dependent Care
- Eye Exam, Eyeglasses, Contact lenses, Eye Surgery
- Fertility Enhancement
- Hearing Aids
- Nursing Home/Services
- Prescriptions
- Psychiatric Care
- Special Education
- Transportation Costs for Medical Care
Ineligible Expenses
- Cosmetic or elective surgery
- Personal trainers
- Marriage or career counseling
HSAs are a personal savings account!
- You own it, not your employer. HSA funds rollover, year-after-year, and you keep the money if you switch jobs or retire.
- HSA funds are always yours to spend on qualified expenses even if, in the future, you’re no longer on an HSA-eligible plan. (You just can’t contribute to an HSA unless you meet eligibility requirements).
- HSA funds can be used on you, your spouse, and tax dependents. Use funds on anyone you claim on your Federal Income Taxes, even if they are not covered on your health plan!
- A Health Savings Account is triple tax advantaged. Contributions are not federally taxed, funds grow tax-free, and funds used to pay for qualified expenses are never federally taxed.
- There’s no time limit for reimbursing yourself. If you don’t have funds in your HSA when you incur a qualified expense, you can reimburse yourself in the future.
A High-Deductible Health Plan (HDHP) has a lower monthly premium (which means less money is deducted from your salary).
The tradeoff is you cover 100% of the costs, including prescriptions—until you hit your deductible. If you are new to using an HSA-eligible health plan, it’s important to be aware of this! Once you meet the deductible, the plan shares the cost (copays or coinsurance kicks in).
To help lower your out-of-pocket costs:
- Make sure you use in-network doctors and providers.
- • This significantly reduces your out-of-pocket expenses, and
- • It ensures any costs you incur are applied towards your deductible.
- Your HSA funds can be used to offset your out-of-pocket costs.
- Remember, HDHPs pay 100% of in-network preventive care—regardless of where you are at with your deductible. Preventive care typically includes:
- • All well-baby visits
- • One wellness visit/annual physical per year per adult
- • Flu shots and vaccinations
- • Prostate exams
- • Mammograms
If you’re worried about a worst-case medical scenario, remember all health plans have an annual out-of-pocket limit.
