A health savings account or an HSA is a personal employee-owned savings account that is established when the employee selects a High Deductible Health Plan from their employer-sponsored health plan offerings. The purpose of the HSA is to help the employee save money for out-of-pocket medical expenses like doctor visits, vision and dental care, and prescriptions. Because of the high deductibles, most coverage is not reimbursed until the deductible is met. That is why making regular deposits into an HSA account will prepare the insured for out of pocket medical expenses.
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An HSA is essentially a retirement fund for medical expenses. This retirement fund is unique because it basically allows individuals to save, grow, and spend their money almost completely tax-free. This is known as a triple-tax advantage account.
Triple tax savings
A health savings account is a win-win for both employers and employees. The tax savings in this account are better than any other savings account even 401k and IRA accounts.
A HSA account is used in combination with a High Deductible Health Plan (HDHP). Individuals must be enrolled in an HDHP in order to make contributions to an HSA account. However, they do not have to be enrolled in an HDHP to spend the money.
An HDHP for individuals in 2019 is defined as having an out of pocket maximum of $6,750, and a minimum deductible of $1,350.
For families, an HDHP is defined as having an out of pocket maximum of $13,500, and a minimum deductible of $2,700.
For all HDHP to qualify the plan cannot have a first dollar benefit, meaning that you must pay the entire deductible before you receive money from the insurance company. An HSA account can be made by individuals or it can be provided and contributed to by employers.
The benefit of an HSA account is in the tax savings. Both the employee and employer do not have to pay payroll taxes on contributions made. As an employer, you get a federal income tax deduction for any contributions you make into the employee’s HSA accounts. The next advantage the employer has is that employee HSA accounts can be easily moved from one HDHP of a particular carrier to another carrier without penalty or difficulty. Having a robust HSA program will give your business a competitive advantage when hiring and retaining quality employees. Obtaining an HSA program is very easy, and the fees associated with this set up are reasonable.
The benefit of an HSA far outweighs the cost. For employers and employees alike, the tax savings that come with this account are better than any other investment savings account. Essentially, with an HSA account, individuals pay little to no taxes. Over a lifetime of saving into an HSA account, the tax savings can be upwards of $30,000. As medical costs rise it is important to prepare for the future. The average American couple will need $280,000 in medical savings for retirement. Plan ahead and start saving now, so you can enjoy your life in the future!
Health Savings Accounts are not only good for medical expenses but they are great for overall retirement. Due to the tax advantages that this account provides many financial advisors would recommend that individuals save into their HSA’s before their 401k accounts. When individuals turn 65 they can take money out of their HSA at their Federal Income level. It essentially has the same function as a 401K account however, 401K accounts are subject to FICA tax (Federal Insurance Contributions Act). That allows individuals to put 7.65% back into their HSA accounts. Consequently, another 7.65% gets put back into the business because employers are subject to pay a FICA tax as well.
HSA accounts are a great way to save for future medical expenses. As the cost of medical care rises it is important to safeguard your future. Educating your employees on this topic can be challenging. With PFSI we take that stress off your hands and help you educate yourself, your business, and your employees.
If you have an HSA account ask your bank how you can start to utilize the advantages in a more effective way. Everyone has different financial needs, understanding your needs and finding the products that are best for you is what we excel at! Give us a call today to find out how you can better safeguard yourself and your future.