With open enrollment around the corner, it’s a great time to think about your healthcare options, especially if you’re wondering about Health Savings Accounts aka HSAs. These accounts are the most tax-advantaged investment vehicles that the IRS offers and can be a game-changer for both your health and your wealth. Let’s break down what HSAs are, how they stack up against other options, and how you can make the most out of them.

1. Can You Use an HSA?

  • The HDHP Requirement: To use an HSA, you’ll need a high-deductible health plan (HDHP). In 2024, that means a plan with a deductible of at least $1,600 for individuals or $3,200 for families. So, if you’re signing up for an HDHP (not a PPO), congrats—you’re HSA-eligible!
  • HDHP vs. PPO: What’s the Difference?
    • HDHP (High Deductible Health Plan): HDHPs usually have lower monthly premiums, which is great if you don’t mind paying more out-of-pocket when you actually go to the doctor. Since they come with a higher deductible, HDHPs qualify for HSAs, letting you save pre-tax money for medical expenses.
    • PPO (Preferred Provider Organization) Plan: PPOs are like the all-you-can-eat buffet of health plans. You pay a higher premium but get more flexibility with doctors, and you’re looking at lower deductibles. However, PPOs don’t work with HSAs.
  • Other Eligibility Rules: If you’ve got an HDHP, you’re almost set. Just remember, you can’t have other health insurance (like through a spouse’s PPO), be on Medicare, or be a dependent on someone else’s tax return.

2. HSAs vs. FSAs: Not Just Alphabet Soup

  • You Own It: An HSA is all yours, which means if you switch jobs or retire, your HSA goes with you. FSAs, on the other hand, are tied to your employer, so if you leave, that money usually doesn’t come with you.
  • No “Use-It-or-Lose-It”: FSA funds expire at the end of the year, but HSAs roll over year after year. So, if you don’t need to use it this year, just let it grow!
  • Contribution Limits: For an HSA in 2025, you can save up to $4,300 if you’re single (up from $4150 in 2024), or $8,550 for families (up from $8300 in 2024). If you’re over 55, you can throw in an extra $1,000. FSAs, meanwhile, cap out at $3,300 in 2025.

3. Why HSAs Are your Tax Advisor’s Favorite Account

  • Triple Tax Advantage: No other account type can compare.
    • Contributions are tax-deductible: This means that you can reduce your taxable income by (up to) $8550.
    • Tax-free growth: Your money can grow, just like the investments in your 401(k), and you won’t owe a dime on taxes for interest, dividends, or capital gains.
    • Tax-free withdrawals: When you use HSA funds for qualified medical expenses, it’s all tax-free.
  • Retirement Savings, Too: Here’s a bonus. After age 65, you can tap into your HSA for non-medical expenses if needed, and there’s no penalty (just regular income tax, like a traditional IRA).

4. Getting the Most Out of Your HSA

  • Invest Your HSA: Some HSAs let you invest the money once you reach a certain balance. So instead of sitting in cash, it can grow your net-worth tax efficiently like a mini retirement account.
  • Keep Receipts and Pay Out-of-Pocket: If you can swing it, pay your medical expenses out of pocket and let your HSA keep growing. Save those receipts, though, because you can reimburse yourself tax-free anytime in the future.
  • Think Long-Term: Health costs in retirement aren’t exactly going down. Saving in your HSA now means you’ll have a little nest egg for future healthcare needs.

So, there you have it! All the information you need regarding HSAs condensed into a digestible (and shareable) email. Open enrollment is the perfect time to consider it, so give it some thought and let us know if we can help determine if an HSA might be the right fit for you. Cheers to smart choices and a healthier, wealthier future!