The Ins and Outs of Health Savings Accounts
October 30, 2017 | Tina PellandWhat is an HSA?
As HDHPs become more and more common, HSAs are becoming a popular tool for employers and employees. Health Savings Accounts coincide with High Deductible Health Plans. These accounts hold funds contributed by an employee, set aside to help pay plan deductibles and approved medical costs. HSAs are under the control of the employee, not the employer or insurance company.
How do they work?
HSAs are only allowed by the IRS if the account holder is a participant in a federally approved HDHP. Plans have to be approved because HSA funds are federal tax exempt. Funds deposited are pre-tax and tax-exempt when withdrawn as long as they are used to pay deductibles or predetermined medical costs. Keep in mind that each year the IRS will set new rules and regulations for HSAs. There is a minimum deductible level for HDHPs, meaning a deductible has to be at least that amount for employees to have an HSA. There is also a maximum spending limit for HSAs, meaning account owners can only contribute up to a certain amount each year.
2016 HDHP Minimum Required Deductibles
-$1,300 for self-only coverage
-$2,600 for family coverage
2016 HDHP Out-of-Pocket Maximum
-$6,550 for self-only coverage
-$13,100 for family coverage
Accounts can be created by employers and employees; therefore they do not have to take place at any specific financial institution. Funds can be deposited through payroll departments or manually, choices vary circumstantially.
What are the benefits?
For employers, there are many benefits of providing HSAs. One is that they can use HDHPs with peace of mind, knowing that their employees can cover costs. High Deductible Healthcare Plans are cheaper than traditional plans, keeping a company’s healthcare costs low. There are also opportunities for corporate tax deductions. Employers even improve employee retention, offering a sustainable tactic for health care costs along with affordable health care.
Employers are not the only ones who benefit from HSAs, there are plenty of benefits for employees as well. One is a massive tax advantage for using an HSA account. Funds are potentially tax-free if employees follow the required guidelines. There is also no rollover limit to contributions. If funds go unused, they only stay in the savings account building tax-exempt interest. Once an employee reaches the age of retirement (age 65), funds can be used for whatever they’d like. A smart retirement account if you will.