A health savings account (HSA) is similar to a personal savings account, but it can only be used for healthcare expenses. You must be enrolled in a high-deductible health plan to be eligible for an HSA. They have become an increasingly popular option for people seeking to manage their healthcare costs, and they also work as a tax-advantaged savings tool.
Here are some reasons you might want to open and contribute to an HSA.
Contributions to an HSA are typically made with pretax dollars through payroll deductions at your employer, so they are not included in your gross income and are not subject to federal income taxes. In most states, contributions are typically not subject to state income taxes.
In addition, withdrawals from your HSA are not subject to federal taxes or Minnesota state taxes if you use the money for qualified medical expenses. We recommend speaking with a tax professional to understand any tax implications for your personal situation.
Many employers have programs that will match your monthly contribution to your HSA up to a certain percentage. The most common match is 3%, but some are higher or even go up the longer you’ve been with the company. Check with your employer about your options and, if you can, always match the maximum percentage amount to ensure you receive the matching program’s full benefit.
You can use your funds on your children or your spouse as long as you claim them as a dependent when you file your taxes. This includes adult children up to the age of 26 who are still on your insurance. This gives you flexibility when an unexpected medical expense comes up and you need the extra funds.
You own your HSA, which means your account moves with you when you leave your job, get laid off, or even fired. You can continue to access the account and use the funds even after leaving your current employer.
With an HSA, the funds left in your account automatically carry over to the next year at the end of the year. This makes it easier to grow your account and pay for future medical expenses.
While there are yearly contribution limits for HSAs ($3,650 for individuals and $7,300 for families), there is no lifetime limit. So, if you’re close to retirement, you can start contributing the yearly maximum now and use that money for medical expenses after you retire. This can help offset the cost of retirement and allow for more options for healthcare.
If you’re interested in learning more about First Independent Bank’s HSA options, check out our Savings and Health Savings Accounts page. Let our team know how we can help!