Health Savings Accounts

How I save ~30% on costs

why you should read this   

Save 30%

Using an HSA saves you ~30% on purchases

save on monthly insurance costs

It's possible you can save on monthly costs and save in your HSA

Long term savings

Save on insurance in the long run

The Healthcare.gov Definition of an HSA

A type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in a Health Savings Account (HSA) to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall health care costs. HSA funds generally may not be used to pay premiums.

While you can use the funds in an HSA at any time to pay for qualified medical expenses, you may contribute to an HSA only if you have a High Deductible Health Plan (HDHP) — generally a health plan (including a Marketplace plan) that only covers preventive services before the deductible. For plan year 2019, the minimum deductible is $1,350 for an individual and $2,700 for a family. For plan year 2020, the minimum deductible for an HDHP is $1,400 for an individual and $2,800 for a family. When you view plans in the Marketplace, you can see if they’re “HSA-eligible.”

For 2019, if you have an HDHP, you can contribute up to $3,500 for self-only coverage and up to $7,000 for family coverage into an HSA. For 2020, if you have an HDHP, you can contribute up to $3,550 for self-only coverage and up to $7,100 for family coverage into an HSA. HSA funds roll over year to year if you don't spend them. An HSA may earn interest or other earnings, which are not taxable.

Some health insurance companies offer HSAs for their HDHPs. Check with your company. You can also open an HSA through some banks and other financial institutions.

To see the original, go to the HealthCare.gov Health Savings Account page. 

 

The IRS Definition of an HSA

A Health Savings Account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to qualify for an HSA.

No permission or authorization from the IRS is necessary to establish an HSA. You set up an HSA with a trustee. A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. The HSA can be established through a trustee that is different from your health plan provider.

Your employer may already have some information on HSA trustees in your area.

What are the benefits of an HSA? You may enjoy several benefits from having an HSA.

  • You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you don’t itemize your deductions on Schedule A (Form 1040).
  • Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
  • The contributions remain in your account until you use them.
  • The interest or other earnings on the assets in the account are tax-free.
  • Distributions may be tax-free if you pay qualified medical expenses. See Qualified medical expenses, later.
  • An HSA is “portable.” It stays with you if you change employers or leave the workforce.

Qualifying for an HSA

To be an eligible individual and qualify for an HSA, you must meet the following requirements.

  • You are covered under a high deductible health plan (HDHP), described later, on the first day of the month.
  • You have no other health coverage except what is permitted under Other health coverage, later.
  • You aren’t enrolled in Medicare.
  • You can’t be claimed as a dependent on someone else’s 2018 tax return.

If you meet these requirements, you are an eligible individual even if your spouse has non-HDHP family coverage, provided your spouse’s coverage doesn’t cover you.

Also, you may be an eligible individual even if you receive hospital care or medical services under any law administered by the Secretary of Veterans Affairs for a service-connected disability.

To see the original, go to the IRS Health Savings Account page.

*12/3/2019 Update –  Your HSA annual limit has been increased to $3,550.00 for 2020. That means you can only contribute this amount in a year without incurring IRS fees or penalties. Make changes to your contribution at any time during the year. 

How To Save 30%

When you use your HSA to pay for copays, medications, visits, etc you save approximately 30% on the cost.

You automatically save ~30% because you didn't pay taxes on the money in your HSA.

What's in your pocket?

$20

VS

$35

No HSA

Yes HSA

Example WITHOUT an HSA

  1. Let's say you earn $100 because you're cool. We all know it.
  2. Your Taxable Income is $100.
  3. You pay your taxes $30
    1. $100 (Taxable Income) * 30% (Tax Rate) = $30 (Taxes)
  4. Your paycheck says $70
    1. $100 (Taxable Income) – $30 (Taxes) = $70 (Net Pay)
  5. You want to buy medicine for $50
  6. You still have $20
    1. $70 (Net Pay) – $50 (Medicine) = $20.

 

 

Example with an HSA

  1. Let's say you earn $100 because your photo was put in a magazine for “Parent of the Year.”
  2. You put $50 in your HSA. This was set up before with your employer.
  3. Your taxable income is now $50
    1. $100 – $50 (HSA) = $50 (Taxable Income)
  4. You pay $15 in taxes
    1. $50 (Taxable Income) * 30% (Tax Rate) = $15 (Taxes)
  5. Your paycheck says $35
    1. $50 (Taxable Income) – $15 (Taxes) = $35 (Net Pay)
  6. You want to buy medicine for $50.
  7. You pay for the medicine with the $50 in your HSA Account.
    1. $50 (HSA Account) – $50 (Medicine) = $0 (HSA Account Balance)
  8. You still have $35.

 

Save Each Month

One of the requirements of having a Health Savings Account is that you must have a high deductible insurance plan.

What does this mean to me? Well, typically a high deductible insurance plan is a little different.

  1. Your deductible could be $5,000. Whatever it is, it will be high.
  2. The cost of your insurance will be lower.
  3. You will pay more each time you visit the doctor or any other medical costs.

Because of those 3 reasons, you will want an HSA to help pay for it.

My strategy is based on my lifestyle. Specifically, I rarely use my insurance except for a yearly visit to the doctor and visits to the dentist. So, my expense are pretty low.

Therefore, I don't want to pay a lot of money each month for something I don't use. Right!

Here is an example

  1. Regular insurance for me is higher.
    1. $800 (Regular Insurance)
  2. High Deductible insurance is lower for me.
    1. $500 (High Deductible Insurance)
  3. This gives me $300 in savings per month.
  4. I put $150 into my HSA ever month.
  5. Total savings of $150 per month. It's actually a little more because we don't pay taxes on the HSA Account.

What does this do? Well, my plan 🙂

  1. Over time, your HSA account will grow. Mine does, because I rarely spend any money on the account.
  2. Over time, the HSA account will cover the cost of the deductible. So, you won't care as much if you have a big expense.
  3. Because the HSA is rarely used and I don't have to empty it every year, I hope to use this for many many years as I reach old age.

Real World Prices

What if you put those extra costs back into your pocket????

Note the differences in costs!? The next closest insurance is almost $200 more. Imagine keeping $200. 

Long Term Savings

If you're consistent with it and don't spend a lot of money on out of pocket expenses, this is what will happen.

  1. The balance in your HSA will grow.
  2. It will grow to have a balance higher than your deductible.
  3. Once that happens, you can choose to contribute (I will) or stop contributing. You'll save the difference.
  4. You will have saved a lot of insurance costs by having a lower monthly insurance cost.

Once you have at least $1,000 in your HSA, you can begin investing

Did you know your HSA has a built-in investment account and can be used like a 401(k) for health care costs? Because the money in your HSA never expires, it can be a great complement to your long-term and retirement savings strategies!

I'm divorced, how can this help me?

Ok, hang with me on this one, we're going to dive deep. Let's get started.

The setup…

Once the amount of child support is set, it may not change unless the courts update it.

In my state, if you pay the health insurance for the kids, it will adjust the amount of child support. If you pay insurance, you get a break on child support.

You may have to split out of pocket expenses. For example, 50/50 for a doctor's copay.

How this helps…

  1. You may get an unexpected bill for out of pocket child support reimbursements. Having this HSA account makes it easier to pay for this surprise cost because it's not coming out of your bank account.
  2. You can use the account for yourself or your kids (if you insure them)
  3. If your kids are taken off of your insurance, you will still have the money in your HSA.
  4. If you switch from a more expensive insurance to a lower cost high deductible insurance plan. You will share more costs.
  5. You may pay less in taxes every year.
  6. You may save more money after taxes every year.

What my insurance company sent me

Don’t Forget Your HSA During Open Enrollment

As Open Enrollment and year-end approaches, consider what you spend each year on prescriptions, glasses, and doctor office co-pays for yourself and your family. Commit to setting aside enough savings in your HSA, and consider increasing them if you can. If you have the option, set up a recurring payroll deduction and pay for these expenses with your HSA to get a tax savings.

How Much You Can Save

For every $30 extra each month you contribute towards your HSA from your payroll, your HSA balance grows faster while you could save 35%* – that’s $126 annually – on taxes.

Give yourself peace of mind. Build a health care safety net that never expires by making regular contributions to your HSA. One of the best features of an HSA is the flexibility to save now and spend whenever. With an HSA, it’s your money. Any funds you contribute but don’t use roll over for as long as you keep your account.

Maximum contribution limits are going up again in 2020 to $3,550 for individual coverage and $7,100 for families! Since you can use your funds on qualified expenses at any time, your HSA is a great tool for long-term saving.

If you are going through open enrollment soon – or just want to plan for next year – be sure to commit to even more HSA savings in 2020!

Common Questions on HSAs

Can a non-custodial parent use their HSA even though the custodial parent claims that child as a tax dependent?

Yep. 

From the IRS: “… a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child’s exemption.

 https://www.irs.gov/publications/p969/ar02.html#en_US_2016_publink1000204081

JUST make sure one of you is claiming this child as a dependent, so you can use tax-free HSA funds for medical expenses.

Since I'm divorced. I can contribute my hsa costs for my daughter. But what is my maximum yearly contribution option, single or family?

I had to call my HSA company to find out. They said because in my insurance, it's listed as a single, I have to use the single maximum amount. I'd have to change my insurance to a family plan for my HSA to raise the maximum contribution amount. 

What happens to my HSA in the case of divorce?

In cases of divorce, an HSA can be transferred between spouses without taxation. This is not considered a taxable distribution. All HSA rules regarding continued tax-free status, contributions and distributions apply.

Because of the divorce, i have to give my ex half of my HSA. How do I do that?

First, your ex has to have an HSA to receive the money. They don't have to have an HSA eligible insurance plan.  Note, they will have to have an eligible insurance plan if they want to contribute more.

If you do it this way, it's all tax-free.

How Much You Can Save?

For every $30 extra each month you contribute towards your HSA from your payroll, your HSA balance grows faster while you could save approximately 35% – that’s about $126  each year in taxes.

Build a health care safety net that never expires by making regular contributions. One of the best features is the flexibility to save now and spend it whenever you want.

Can I pay daycare costs with my HSA?

No. Definitely check to see if you can get a Dependent Care FSA through your company. Think about it, if you do, this is a possible 30% discount on your child care costs. That's huge!