Taking care of your health and the health of the ones you love is important. With the high cost of U.S. healthcare, however, it can be financially challenging keep up with the rising costs of medical care, medicine, and supplies. Fortunately, there are Health Savings Accounts (HSAs). These powerful financial tools allow you to set aside tax-advantaged money each year, specifically for healthcare costs while helping to reduce your overall tax burden.
This blog provides an easy-to-understand guide about Health Savings Accounts so you can make the right decisions when it comes to the health and financial wellness of you and your family.
What is a Health Savings Account?
A Health Savings Account or HSA is a savings account that allows you to set aside money dedicated for healthcare expenses. Your deposits to an HSA are pre-tax, meaning the amount you allocate is taken directly from your paycheck as a payroll deduction. Doing so over the calendar year may help reduce your taxable income, per Nerdwallet.com.
HSA accounts can be opened at credit unions or banks offering HSAs. HSA funds may be withdrawn to pay for approved medical expenses such as health plan co-payments, dental work and orthodontia, eyeglasses, contact lenses, prescriptions, and more. If your doctor recommends additional medical services, these may also be eligible, per Bankrate.com.
Who Qualifies for an HSA?
Having a Health Savings Account helps with medical expenses that your primary healthcare plan otherwise would not cover. This account is also a valuable tool for unexpected medical expenses. There are certain requirements before you can open a Health Savings Account:
- You must be covered under a qualified high-deductible health plan (HDHP)
- You may not be covered under any health plan that is not a qualified HDHP
- You must not be enrolled in Medicare
- You may not be claimed as a dependent on another individual’s tax return
HSA Contribution Limits
Health Savings Accounts have limits on the amount you can deposit per year. The Internal Revenue Service (IRS) sets these contribution limits, and each amount is set based on individual plans and family plans, says Fidelity.com. The contribution limits set in 2023 are $3,850 for Individual Plans and $7,750 for Family Plans.
Contributors who are 55 or older can save an additional $1,000 a year as catch-up contributions. In 2024, the IRS plans to increase the contribution amounts to $4,150 for Individual Plans and $8,300 for Family Plans.
Tax Benefits of HSA
Contributions to an HSA are tax-deductible, meaning they can be deducted from your adjusted gross income, which will reduce your taxable income, says Nerdwallet.com. HSA contributions, if allowed by your financial institution, may be used to invest in stocks and other securities, which can generate more return over time. Check with your HSA provider to see if this option is available.
HSA withdrawals for medical costs are tax-free if they are used for approved medical costs. If you use these funds for anything other than medical expenses, you will be liable to pay taxes on that amount, per Nerdwallet.com.
How to Boost HSA Contributions
There are a few ways you can boost contributions to your Health Savings Account:
- Direct Deposit: Use payroll deductions so your contributions are consistent, automatic, and convenient. With each direct deposit into your HSA, you will reduce your taxable income by the amount you contribute each paycheck, per Bankrate.com.
- Find a High-Rate HSA: Another way to boost your contributions is to find an HSA that pays higher dividends. Growing your funds can also be done through investing the HSA contribution. Find a financial institution that allows this.
- Catch-Up Contributions: If you are age 55 or older, you can boost your HSA through additional “catch-up” contributions that allow you to contribute $1,000 more than the maximum.
- IRS’s “Last month” rule: The final way to boost your HSA is to use the IRS’s “Last month” rule, which allows you to maximize the contributions you can make each year by using the full 12 months.
How Travis Credit Union Can Help
Travis Credit Union’s Health Savings Accounts make it easy for you to save for your healthcare expenses. You can set up contributions through payroll deduction to save regularly throughout the year. Plus, you can use our digital banking tools to transfer money from one TCU account to your HSA at any time and from anywhere, including the comfort of your own home.
To open a TCU Health Savings Account, visit a local TCU branch or contact our Member Service Center at 1-800-877-8328.