Health Savings Accounts

Written By: Rishi Ghosh – Founder and Principal

What better time to talk about Health Savings Accounts than the season that is riddled with falls, viruses, and colds? A Health Savings Account or “HSA” is a tax-advantaged savings account available to people who are enrolled in a High Deductible Health Plan (HDHP).  It allows individuals and families to save money on a pre-tax or tax-deductible basis to pay for eligible medical expenses, such as deductibles, copayments, coinsurance, prescriptions, and some other health-related expenses not covered by insurance.

The biggest benefit; of an HSA is its Tax Advantage.  Contributions to a HAS through payroll deductions are made with pre-tax dollars, which means they reduce your taxable income. The funds in the account grow tax-free, and withdrawals used for qualified medical expenses are also tax-free.  An HSA is owned by the individual, not by an employer, this means the account and its funds stay with the individual even if they change jobs, retire, or switch health insurance plans, as long as they are enrolled in an HDHP. 

Before considering contributing to an HSA, you must understand the contribution limits.  There are limits to how much you can contribute in a given year, these limits are set by the IRS and can change from year to year. For 2024, the contribution limit is $4,150 for individuals and $8,300 for families.  Many HSAs allow you to invest your savings in a range of investment options, similar to how you might invest in a 401(k), which can potentially increase the account’s value over time.  To contribute to an HSA, you must be enrolled in a High Deductible Health Plan (HDHP) and cannot be covered by another non-HDHP health plan. You also cannot be claimed as a dependent on someone else’s tax return. 

Since Medicare is not an HDHP, those covered by Medicare are no longer eligible to contribute to an HSA account.  If a person is collecting Social Security benefits, the individual is automatically enrolled in Medicare Part A at age 65.  Even most of those who are not yet claiming Social Security retirement benefits choose to enroll in Medicare at age 65.

A small minority of those turning 65 and still working, might elect to keep their employer-sponsored HDHC instead of signing up for Medicare.  Those individuals would be eligible to still contribute to an HSA after age 65. Health Savings Accounts offer a way to save on current and future medical expenses while providing the benefit of tax savings. It’s important to note that using HSA funds for non-qualified expenses can result in tax penalties. Should you have any questions about using an HSA as part of your retirement strategy, please don’t hesitate to reach out to our team at  Wheelhouse and we would be more than happy to discuss the pros and cons of an HSA and how it relates to your individual situation.