Invest in Your Wellness with an HSA

With rising costs each year, being prepared for medical expenses is nothing to sneeze at. It’s well worth exploring your health insurance options. A health savings account (HSA) can be a valuable tool to help you manage your health care costs and plan for your future.

HSA’s were created so that individuals covered by high deductible health plans could receive tax-preferred treatment for the money they save for medical expenses.* These eligibility requirements include:

• The account holder must be covered by a high-deductible health plan.
• The account holder must not be eligible to be claimed as a dependent on another’s tax return.
• The account holder must not be enrolled in Medicare.

An HSA lets you save money to spend on qualified out-of-pocket medical expenses such as your deductible and co-payments for doctor visits. You can also use it for prescription drugs, vision, or dental care that may not be covered by your insurance. Additionally, you don’t have to use the money by the end of the year, so it can grow tax-deferred in your account for later use.

Based on IRS guidance, an HSA does not need special permission or regulatory authority from the IRS. Custodians such as banks, who have been approved by the IRS, can provide HSAs. If you are employed, your company may have a custodian they currently work with. If you’d like to learn more about opening an HSA at First Citizens, connect with us by filling out a contact form.

HSAs are appealing for retirement savings because they offer triple tax-free advantages for long-term investing: no taxes on contributions, earnings, or withdrawals.* To further explain:

1. Contributions can be made via payroll deductions on a pre-tax basis, which means they reduce your federal and state income tax liability. You’re also able to contribute your own funds (up to the annual contribution limits) which are also tax-deductible.
2. Your account balance will grow tax-free. Any interest, dividends, or capital gains you earn are nontaxable.
3. Withdrawals for qualified medical expenses are tax-free. This is a key differentiator to traditional retirement savings tools like 401(k)s or IRAs. When you withdraw funds from those tools, you pay income tax on withdrawals, regardless of how the funds are being used. With IRAs and 401(k)s, you also must be a certain age to withdraw money, which is not the case for HSAs.

The great thing about having an HSA is that it’s completely yours. So when you get a new job or change health plans, your HSA and all the money in it come with you. You can roll the account into your new employer’s HSA or leave it alone, but those funds are yours to use for qualified expenses either way.

Overall, if you qualify for a health savings account, it’s definitely an ideal option for reaping both tax advantages as well as healthcare savings. More importantly, an HSA allows you and others to contribute to your long-term healthcare plans while still allowing you to grow your contributions over time.

For more information on HSA’s, visit Publication 969 at www.irs.gov