Most of you are probably aware that you have a Health Savings Account (HSA) that is administered through Bank of America, but are you taking full advantage of how it can benefit you?
What is an HSA Plan?
An HSA plan can be explained as a tax-exempt personal savings account. The money that goes into the account is used to pay future medical expenses and you do not pay taxes on any of the money you use towards qualified health-related expenses. You own the HSA, not your employer, insurance company or the government.
What are the Benefits to You?
HSA plans offer 3 great tax advantages:
- The money contributed into the account is tax deductible
- The money grows tax free in a stable account or investments
- Your withdrawals for qualified health care expenses are tax-free
Are you Eligible?
You may be eligible for an HSA if you’re covered by a qualified high-deductible health plan (HDHP).
You’re not eligible for an HSA if you are:
- Covered by another health insurance plan, such as a spouse’s plan, that is not a qualified HDHP
- Claimed as a dependent on another person’s tax return
- Enrolled in Medicare benefits (if you are enrolled in Medicare and already have an HSA, you can continue to use the money in your account, but you cannot make new contributions to the account or open a new HSA)
2017 HSA Contributions Limits – How Much Can You Put In?
Why Do You Need an HSA Plan if You Have Health Insurance?
If your insurance has a high deductible and associated co-pays, you can use the money in your HSA to help pay your deductible and co-pays. You can also use it to cover any prescription medications that your insurance does not cover as well as over-the-counter medications (as long as your doctor writes you a prescription for the medications.) Also, if your insurance does not cover all of your dental and vision expenses you can use the money in your HSA to fill the gaps.
The Bottom Line?
An HSA plan is not meant as an alternative to health insurance, but rather as a compliment to the insurance to make health care costs more affordable. If you have a higher income and cash reserves, consider paying high deductibles and out-of-pocket expenses and invest in an HSA plan, thereby seeking to let your money grow tax free for future medical expenses when you retire.
As a general guideline, we would suggest that if you plan on using the assets in your account to pay for medical expenses within 3 years that you should probably just leave the assets in the stable value or cash reserves account. However, if you can afford to pay expenses out of pocket for a few years, consider investing the assets based upon your risk tolerance and time horizon to take advantage of the tax-free potential growth for future medical expenses in retirement. We highly encourage you to consider contributing the maximum allowable contributions each year. Consider contributing more than you need to spend in the year, so next year can begin with a positive balance. If you have more than $1,000 in cash in your HSA, you may consider investing in the available mutual funds, any earnings are tax-free.
Please find updated GM HSA allocations below for your consideration.
*The suggestions above are general guidelines. Your situation should be based upon your own personal time horizon and risk tolerance.
Consult with prospectus prior to making any decisions.
Investing in mutual funds involves, risk, including potential loss of principal.