Making Health Saving Accounts Work for You

When illness or injuries occur, paying for out-of-pocket medical expenses can be overwhelming for many people. By planning ahead and saving a little bit every month you can feel prepared to deal with unexpected medical costs. If you are a participant in a high deductible HSA eligible health insurance plan, a Health Savings Account can be an important part of your overall financial picture.

Which insurance plans are eligible?

For 2021, an HSA eligible plan must have a deductible of at least $1,400 for and individual and $2,800 for a family plan. HSA eligible plans require the insured to pay for most expenses out of pocket until the deductible is met.  It is important to understand that not every insurance plan is HSA eligible even if the deductible is high.

How do HSA’s work?

An HSA account allows you to put pre-tax dollars into a savings account, then use those dollars to pay medical expenses without ever paying any tax on the dollars used for the payment.

The maximum annual deferral amount depends upon the type of health insurance coverage you have.  Also, the annual contribution limit usually increases slightly each year so you may want to adjust accordingly. HSA eligible health insurance plans may cost less which may allow you to choose to invest what you are not spending on premiums.         

How much can I save?

For individuals with single health insurance coverage the annual contribution limit is $3,600.  For individuals with family health insurance coverage the annual contribution limit is $7,200.  If you are over the age of 55, you can contribute up to an additional $1,000 per year to increase, your maximum annual contribution to $4,600 or $8,200 depending upon the type of health insurance coverage you have.

Contributions can be deductible on your tax return if they are paid out of pocket instead through salary deferral from your employers’ payroll.

Additional Benefits

Some additional advantages an HSA account provides include:

  • At the age of 65 you can treat your HSA like an IRA and take distributions for purposes other than medical expenses without penalty, although you will pay income tax on the distribution.
  • You can invest the assets in the account no matter what your income is. There are no income limits to be eligible to contribute unlike an IRA.  Once your income goes above a certain level you can no longer make tax deductible contributions to an IRA.
    1. For higher income earners an HSA is one of the few ways to save money tax deferred.
  • You can do a once in a lifetime tax free rollover from an IRA to an HSA up to the annual contribution limit. However, you must remain in a high deductible health insurance plan for at least 12 months following the rollover.
    1. You are not allowed make rollover contributions to an HSA from a 401(k), 457, or other retirement plan. You can first roll money over to an IRA and then do a rollover from the IRA to the HSA
  • There are options available for those who want to grow their HSA in the equities market. This can be attractive for those who don’t typically spend down their HSA on an annual basis or those who have accumulated a larger balance.

Can I use my HSA to pay health insurance premiums?

You can only use your HSA to pay health insurance premiums if you are collecting Federal or State unemployment benefits, or you have COBRA continuation health insurance coverage through a former employer.

Nathan Deets, CFP, Advisors Management Group

Nathan Deets CFP

Investment Advisor Representative & Tax Preparer


Nathan joined the firm in 2006. As an Investment Advisor Representative, he is part of the team that designs our clients’ investment portfolios, prepares individual tax returns, and helps our Advisor Team with financial planning for our clients.

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