Should I be contributing to my HSA?
Hi FG team,
My employer just sent out a notification that we have a new health insurance option and we can now contribute to a Health Savings account. They said something about them adding an employer contribution if we decide to participate. What is this and is it something I should participate in?
Trying to adult
This is such a great question. Health Savings accounts (HSAs) aren’t for everyone but there are aspects to them that may make them beneficial for you. Generally speaking, HSAs give you the opportunity to save money for qualified medical expenses. Here are a few things to know and consider when trying to decide if you should participate.
1- You have to be enrolled in a high deductible health plan (HDHP). A deductible is the amount of money you have to pay out of pocket before your insurance kicks in (just like car insurance). To be considered a “high deductible plan” your deductible has to be more than $1,400 for an individual or $2,800 per family (2022). Don’t worry, your plan will likely say “HDHP” in its title. If you have questions about which plans are eligible, reach out to your HR or health plan provider. A high deductible plan could be a good idea if you aren’t anticipating a lot of medical expenses.
2- Contributions made from you to your HSA help lower your taxable income. There are certain types of contributions that are made before taxes are taken out of your paycheck like investing funds in your 401(k). These kinds of contributions help lower your taxable income thus saving you money come April. You could also use this if you are maxing out your 401(k) and still want to further reduce your taxable income.
3- You have options to invest this money and let it grow. The money you contribute to this account doesn’t have to be used by the end of the year. HSAs can get confused with FSAs, flexible spending accounts. They were both created to cover medical expenses however FSA funds do not roll over every year. You lose whatever balance you have in it at the end of the calendar year. Health savings accounts do not expire and DO roll over from one year to the next. HSAs also offer different investment options, allowing your money to grow more if you don’t have a need for that money right away. In an effort to not make this a novel for you, I’ll give you a teaser, the funds grow tax-free as well, and as long as they are used for qualifying medical expenses your distributions are also tax-free. You’re welcome!
4– These funds are portable. Let’s say you have a high deductible health insurance plan this year so you put a bunch of money into it and your employer puts money into it and then that high deductible plan isn’t an option anymore… What would happen to the money that is in there? Nothing! Nothing would happen unless you have it in a mutual fund and then (hopefully) it will continue to grow. You will still have access to your money and can still use it just like you did before. The same applies if you were to change employers. Once your money is deposited, it is yours to use.
There are no right or wrong answers when it comes to if you should participate or not because everyone’s families and medical situations are different. This is just another tool and employee benefit that can help you get to your goals faster.
Health Savings Accounts can be a great financial tool to keep in your and your employee’s toolbelt. We want to make sure your employees understand the financial benefits you are offering them. Click here to learn more about how our team can help your population navigate this and other employee benefits you offer.