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HSA - Is it really all that? - 1/11/2022

Updated: Jul 29, 2022

Health Savings Accounts (HSA's) are a pre-tax savings/investment account available to people that have a high deductible health insurance plan. As high deductible health insurance plans (HDHP's) become more popular due to their low cost, more people are being offered an HSA option.

Flexible Spending Accounts (FSA's) have been around since the '70s, so most people are familiar with them - they are a pre-tax withholding that can be used for certain medical expenses, typically within the year, or extended grace period, of the withholding. They are a 'use it or lose it' benefit. FSA's are why you see ads from pharmacies, eye doctors, and dental offices reminding you to use up your remaining balance before the end of the year. The FSA contribution limit for 2022 is $2,850.

HSA's have been around since the early 2000's and are only available if you have a high deductible health insurance plan. They were created to ease the financial strain of an HDHP, where you pay for all of your medical expenses out of pocket until the deductible is met. The HSA contribution limit for 2022 is $3,650 for an individual and $7,300 for family coverage, plus an additional $1,000 if you are over age 55. The additional $1,000 is the same for individual or family coverage.

Unlike FSA's, your HSA plan balance is your own money. You keep your HSA at the end of the year and it is your money even if you leave your job. You also retain your HSA account if you switch to a non-HDHP plan at some future time, and can continue to use the money for approved medical expenses (though you can no longer make contributions).

Some people use their HSA accounts as an additional retirement vehicle, paying for their current medical costs out of pocket, investing their HSA balance, and growing the money to use for medical expenses when they retire. As long as HSA money is used for medical costs there is no tax on the money earned or used.

If you have an HSA account, you will fill out beneficiary paperwork just like you would for any investment account. There are different distribution rules for your beneficiary depending on their relationship to you. Currently, a spouse would receive the account with all of the benefits of account ownership. Anyone else would be able to pay your final medical expenses from the account tax-free but have to take the remainder as a taxable distribution.

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