The Complete Guide to Health Savings Accounts (HSA)

Questions answered: Should you consider HSAs or IRAs? How do HSAs actually work? What are the requirements to make use of an HSA?

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Key Takeaways:

• If used properly, HSAs can be one the best retirement investment accounts.
• How an HSA works:
  • You can only utilize an HSA if you or your spouse are covered by a high deductible health plan at work.
  • Any money that you put into an HSA is pre-tax.
    • As the funds grow, the growth is also tax-free.
    • If you pull funds for qualified medical expenses, that is tax free as well.
    • California and New Jersey don’t recognize HSAs, so you do not have the same tax benefits in those states.
  • After age 65, you can use HSA money for non-medical expenses.
• How much can you put into an HSA?
  • For individuals: up to $8350.
  • For a family plan: up to $7300.
  • If you’re 55 or older, there’s an additional annual $1000 catch-up contribution.
• How HSA contributions are different to retirement plan contributions.
  • With a 401(k), you have your own limit, and your employer can match it.
    • If you’re 50 or older, you can contribute up to $27,000 and your employer can contribute above that up to an IRS limit.
  • With an HSA, your employer’s contribution counts against your contribution limit.
  • With an FSA, any amount that you don’t use is forfeited.
• HSA eligibility.
  • High-deductible health plan
  • There are no income limits.
    • With IRAs, if you earn over a certain amount of income, you can no longer contribute to them.
  • There are no required minimum distributions.
  • There’s no timeframe in which you need to use the funds.
  • The IRS allows you to make a one-time transfer of your IRA funds into your HSA.
    • This is subject to the maximum contribution limit.
• Beneficiaries:
  • When you pass away, the HSA becomes your beneficiary’s HSA.
  • The funds in the HSA become taxable to any non-spouse beneficiary.
• If you are enrolled in Medicare, you can continue to use your HSA funds, but you can’t make new contributions.

Episode Timeline:

[01:07] Listener question.

[04:21] How an HSA works.

[08:54] How much can you put into an HSA?

[09:47] How HSA contributions are different to retirement plan contributions.

[13:07] HSA eligibility.

[14:56] How to leverage an HSA to improve what you’re doing financially.

[22:32] Beneficiaries.

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