Broker Check
What is an HSA account?

What is an HSA account?

May 30, 2023

With the costs of healthcare continuing to rise year over year, Health Savings Accounts or HSAs are becoming an increasingly more popular way to save money on health care expenses and reduce tax liability. HSAs are tax-advantaged accounts that allow individuals to save for medical expenses that are not covered by their insurance plans. These accounts can be used to pay for several healthcare expenses like deductibles, copays, prescription medicine, etc.

They are considered tax-advantaged accounts because when you contribute into an HSA, the contribution is tax-deductible. This means that you can reduce your taxable income by the amount of your contribution. For example, if you contribute $5,000 into your HSA and your taxable income is $75,000, your taxable income will be reduced to $70,000. Then, the funds inside of your HSA grow tax free which will allow for your savings to compound over time. Finally, withdrawals are tax-free if they are used to pay for qualified medical expenses.

To qualify for an HSA, you must be enrolled in a high-deductible health plan. For 2023, the IRS defines a high-deductible health plan as a health plan with a deductible of at least $1,400 for an individual or $2,800 for a family. The maximum out of pocket limit for a high-deductible health plan in 2023 is $7,050 for an individual and $14,100 for a family. Please note that you cannot contribute to an HSA if you are enrolled in a non-high-deductible health plan or if you are enrolled in Medicare.

HSAs can be a very powerful tool to utilize in your later bucket especially for individuals who are concerned about the rising costs of healthcare. Some HSA providers offer a range of investment options like mutual funds and ETFs. In deciding whether to invest in your HSA, it is very important to consider your investment goals and when you plan to use the monies. We recommend that you reach out to your advisor and discuss your particular situation and the pros and cons to each strategy.