Health Savings Account
At M&F Bank, we want to help curb your medical costs. We offer Health Savings accounts (HSAs) to individuals, Third Party Administrators (TPAs), agents, brokers & employers as a solution. With lower fees, a wide selection of service options, and our experience with custodial accounts, our range of benefits sets us apart as your preferred HSA provider.
What is a health savings account?
A Health Savings Account (HSA) is a specialized personal savings account with valuable tax advantages, empowering individuals to allocate pre-tax income specifically for healthcare expenditures. In contrast to medical flex plans, HSAs provide the benefit of earning interest, deferring taxes, and rolling over any unspent funds to the following year.
HSAs cater to individuals with high deductible health plans, offering flexibility and a diverse scope of usage. Account holders can allocate HSA funds towards various health-related expenses, including eyewear, non-prescription medications, therapy, medical equipment, diagnostic tests, and more.
How does a health savings account work?
An HSA works in conjunction with high-deductible health insurance. You can use your HSA money to help pay the health insurance deductible and any qualified medical expenses, including those not covered by the health insurance, like dental and vision care. Any funds you withdraw for non-qualified medical expenses will be taxed at your income tax rate, plus a 20% tax penalty.
Once you meet your calendar-year deductible, the health insurance pays the remaining covered expenses following the terms and conditions of your particular plan. Some plans pay 100% of covered costs after the calendar-year deductible is met.
Health savings account vs. FSA: what’s the difference?
A Health Savings Account (HSA) is a tax-advantaged savings account aligned with high-deductible health plans, allowing pre-tax income allocation for qualified medical expenses with a triple tax advantage. This encompasses tax-free contributions, growth, and withdrawals for medical expenses, with the flexibility of fund rollover.
On the other hand, a Flexible Spending Account (FSA) is a tax-advantaged account for medical costs, funded with pre-tax dollars, and usable for eligible expenses; however, many FSAs have a “use-it-or-lose-it” policy at the plan year’s end, although specific plans may offer grace periods or carryover options.
Choosing between an HSA and an FSA depends on factors such as your healthcare plan, financial goals, and spending habits. Whether you’re seeking long-term savings potential or prefer more immediate access to funds, our team at M&F Bank is here to guide you through the decision-making process.
Health Savings Account Benefits
HSAs can help curb medical costs, reduce taxable income, and even plan for retirement income. Here are some of the numerous advantages that contribute to overall financial well-being:
Triple Tax Advantage
- Tax-free contributions: Contribute pre-tax dollars to your HSA through employer payroll deductions, reducing your gross income and federal income tax liability. Most states also exempt contributions from state income taxes.
- Tax-free gains: Any interest or earnings accrued within the account remain tax-free.
- Tax-free withdrawals: Utilize your HSA funds for qualified medical expenses without incurring federal (and often state) taxes on withdrawals
Customizable Control
Decide the amount you wish to allocate to your HSA, up to the IRS contribution limit, and choose which qualified expenses to cover with these funds.
Seamless Transitions
Your HSA funds remain accessible even if you switch health insurance plans, change employers, or embark on retirement. The funds are evergreen and can be utilized for qualified expenses throughout your lifetime.
Yearly Carryover
Any unused balance at the end of the year seamlessly carries over, ensuring you never lose your hard-earned funds.
How to Open a Health Savings Account
The initial step to opening a health savings account is determining your eligibility. Qualifying for an HSA entails the following criteria:
You already have a qualified high-deductible health insurance plan.
HSA Qualifier
You do not possess coverage under any other health insurance.
HSA Qualifier
You are not currently enrolled in Medicare.
HSA Qualifier
No other individual claims you as a dependent.
HSA Qualifier
Exceptions to the above include health insurance coverage for accidents, dental care, disability, long-term care, and vision care, which do not hinder your eligibility. Permissible coverage includes workers’ compensation, specified disease, and fixed indemnity coverage.
At M&F Bank, we want to empower you to take charge of your healthcare finances. With our streamlined process, opening an HSA has never been easier. Please get in touch with one of our branches today to embark on this journey toward financial wellness and medical security. Your medical costs and future self will thank you.
HSA Frequently Asked Questions
Are there HSA management fees?
Yes, if the minimum daily balance is under $2,000, there is a $4.00 charge each month.
What is a qualified medical expense?
As defined by Internal Revenue Code Section 213(d), a qualified medical expense is one for medical care. The expenses must primarily alleviate or prevent a physical or mental defect or illness, including dental and vision.
Most expenses for medical care will fall under IRC Section 213(d). However, some expenses do not qualify. Some examples are:
- Surgery for purely cosmetic reasons
- Health club dues
- Illegal operations or treatment
- Maternity clothes
- Toothpaste, toiletries, and cosmetics
You generally cannot use HSA money to pay your insurance premiums. See exceptions under “Can my HSA be used to pay premiums?”.
*See IRS Publications 502 (“Medical and Dental Expenses”) and 969 (“Health Savings Accounts and Other Tax-Favored Health Plans”) for more information.
Are there adjustments for inflation?
Yes. The tax law requires an annual Cost of Living Adjustment (COLA) based on changes in the Consumer Price Index. This calculation, rounded to the nearest $50 increment, affects deductible limits, maximum out-of-pocket amounts, and the maximum annual HSA contribution limits. Health insurance deductibles may change by the COLA each year.
Can I have an HSA and an IRA?
Yes, having an HSA does not restrict your IRA eligibility.
What are the tax-deductible contribution limits?
The 2022 annual HSA contribution limit is $3,650 for individuals with self-only High Deductible Health Plans (HDHP) coverage and $7,300 for individuals with family HDHP coverage. Individuals aged 55+ may contribute an additional $1,000 for each tax year.
Do HSA plans work with physician and provider networks?
Yes. These networks are often part of the health insurance plan, and they provide discounts on health care. The discounts apply to all care — even before meeting the health insurance deductible. So, your HSA plan savings go further.
Can my HSA be used for dependents not covered by health insurance?
Generally, yes. Qualified medical expenses include unreimbursed medical expenses of the account holder, their spouse, or dependents.
Can I make withdrawals for unqualified medical expenses?
Withdrawals for unqualified medical expenses from your health savings account are taxable income and subject to a 20% tax penalty.
Exception:
There is no additional tax on distributions made after the date you are disabled, reach age 65, or die.
Can my HSA be used to pay premiums?
No. This would not be a qualified medical expense, subject to taxes and penalties.
Exceptions:
No penalty or taxes will apply if you withdraw the money to pay premiums for:
- Qualified long-term care insurance; or
- Continuation of coverage plans, like COBRA, required under any federal law; or
- Health care coverage while receiving unemployment compensation under federal or state law;
Or
- Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).
What are the tax benefits?
There are three significant tax advantages to your HSA.
- Cash contributions to an HSA are 100% deductible from your federal gross income (within legal limits).
- Interest on savings accumulates tax deferred.
- Withdrawals from an HSA for qualified medical expenses are free from federal income tax.
When can I start to use the funds in my HSA?
Once your account is open, you have made a deposit, and funds are available, you can start using your HSA. Once you’ve deposited the money, you are 100% vested and have total control over the funds.
What expenses are qualified for reimbursement from my HSA?
You are eligible to receive tax-free reimbursement for qualified health expenses not covered by your insurance as defined by Section 213(d) of the Tax Code. A list of these expenses is available at https://www.irs.gov/publications/p502.
HSA distributions used for any purpose other than the qualified medical expenses listed will be taxable, and the appropriate tax rules will apply.
What about “catch-up” contributions for those 55 and older?
Individuals aged 55 and over may contribute an additional $1,000 above the maximum for each tax year.
Is it true that individuals 65 or older can take out funds from their HSA plan for any reason without a penalty?
If an individual is 65 or older, regardless of whether they have enrolled in Medicare, there is no penalty to withdraw funds from the HSA. As always, standard income taxes will apply if the distribution is not used for unreimbursed medical expenses (expenses not covered by the medical plan).