Updated November 15, 2018
Who can get an HSA?
To qualify for an HSA, you must be under age 65 and carry a high-deductible health insurance plan. For 2019, the IRS defines a high deductible health plan for an individual as a plan with an out-of-pocket maximum of $6,750 and a minimum deductible of $1,350. For a family plan in 2019, the out-of-pocket maximum is $13,500 and the minimum deductible is $2,700.
If your employer offers an HSA option, you can sign up during open enrollment. You also can start an account on your own through a bank or other financial institution. If you have a spouse who uses your insurance as secondary coverage, he or she also must be enrolled in a high-deductible plan.
Why would you want an HSA account?Health is unpredictable: You never know when you’re going to need to cover medical costs. An HSA account encourages you to set aside money specifically for your health. Plus, an HSA offers substantial tax advantages. HSA contributions are made before your income is taxed and you don’t pay taxes on the account’s growth. When you make withdrawals for eligible expenses, you don’t pay tax on that money either.
What are some other advantages?You get to decide how much money to set aside for health care costs, and you control how your HSA money is spent. Even if your employer contributes to your HSA, it’s your account and the money remains in your account even if you change jobs. Also, any unused money at the end of the year stays in your account into the next year.
Experts say you shouldn't overlook the role of an HSA as a way to save for medical expenses in retirement, when health care expenses tend to rise.
How much can you contribute?
In 2019, an individual can contribute a total of $3,500 pretax annually, and a family can contribute $7,000 pretax annually. If you’re age 55 or older, add another $1,000.
Investing your HSA savingsHere’s another perk: You can deposit pretax dollars (or deduct your contributions), and the money grows tax-free—similar to an IRA or 401(k). You may need a specific amount – or an investment threshold – in your account before you’re able to invest. If you're funding your own HSA, be aware that some funds charge fees, and their performance varies.
Before researching HSA accounts or contributing to one provided by your employer, determine your overall goals and then ask questions. Talk to a financial advisor to find out what would work best for you, your current needs and your long-term goals.
For expert advice on HSA’s, we spoke to Martha E. Gonzales, president, Corporation for Healthcare Marketing, Inc., CHM Insurance Services.