Open enrollment is the perfect time to learn about a health savings account (HSA) and how to utilize it as a lifelong financial tool.

What is an HSA?

An HSA is an individually owned, tax-advantaged account that may be used to pay for qualified medical expenses or saved for retirement and long-term care expenses. It is portable, which means your hsa funds are not lost or forfeited if you change jobs, insurance plans or become unemployed.

For 2023, the maximum contribution amount will be $3,850 for individual coverage and $7,750 for family coverage. For 2024, the maximum contribution amount is $4,150 for individual coverage and $8,300 for family coverage.

How can an HSA help you?

An HSA allows you to be more involved with decisions on how your healthcare dollars are spent, encourages you to budget effectively and helps you save money, now and for your future. It serves as a powerful financial tool for long-term savings through impactful tax and financial advantages. Plus, there is no age requirement for withdrawals, income limits or required minimum distributions. In short, an HSA is a flexible tool for both financial planning and managing healthcare costs.

Support in your retirement years

When looking toward retirement, HSAs fare better than other retirement investment vehicles as these accounts allow the trifecta of tax-free contributions: earnings, withdrawals, and the ease of access after 65 (no penalties, no minimum distributions required). In addition, you can use your HSA for medical expenses as you age, allowing you to save 401(k) dollars for other expenses.

HSAs are an effective way for you to build wealth and financial security in areas where traditional retirement plans and Social Security will not be enough. You can speak with a trusted advisor to discuss the next steps in your retirement planning journey and where HSAs fit into your financial plan.

Are you eligible for an HSA?

Here is what determines your HSA eligibility:

  • You must be enrolled in in a high-deductible health plan (HDHP)
  • You cannot be enrolled in any part of Medicare
  • You cannot be claimed as a dependent on someone else’s taxes
  • You cannot have any other non-permissible coverage

There are requirements for contributions, and also no restrictions on when you can spend.

Stages of HSA account use

Over time, individual and family health savings needs vary greatly, as spending and saving goals can change based on current and future financial considerations. Below is a yearly breakdown of recommended HSA strategies to follow as your financial needs progress:

First year strategies: Spending or minimally saving

  • Review your annual medical spending needs
  • Look at co-pays and out-of-pocket costs, and use your HSA to save in order to cover these
  • Plan for expected medical costs – and again, use your HSA to cover these
  • Try to contribute any excess savings you have so you can reach the maximum contribution limit

Second – fifth year strategies: Spending and building up savings

  • Increase your contributions to save more
  • Build HSA savings to provide a buffer against high deductible health plans
  • Use resources and tools to find cost-effective care
  • Try to pay for medical expenses out of pocket when possible
  • If you need to recoup the costs, save receipts to reimburse yourself later from your HSA

Sixth – 10th year strategies: Saving and investing

  • Increase your contributions to save more
  • Start investing – Review your employer’s investing tools to see if there are offerings available to you.

11th+ year strategies: Maximizing and investing

  • Look to contribute the maximum amount
  • Invest what you don’t anticipate needing for medical costs
  • Enroll in a limited purpose flexible spending account for anticipated dental and vision expenses and limit your HSA to medical care

The unexpected can happen as you progress through these general life stages, such as experiencing challenging medical needs which can cause your HSA use to look different. Regardless of which stage you find yourself in or working toward, an HSA is a beneficial financial tool through it all.

Your healthcare needs and HSA usage will continue to evolve throughout your life and every year counts when it comes to your future. It’s important to contribute, save and invest in your financial well-being as you grow older.

Learn more about UMB Healthcare Services and how we can help with benefit spending and saving accounts. Read more about the state of the industry at 2022 Devenir Mid-year HSA Market Statistics & Trends Report‡.

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