Planning for future healthcare costs might feel overwhelming, but it doesn’t have to be that way.

A Health Savings Account (HSA) is a smart financial tool that helps you save for medical expenses while enjoying some pretty significant tax benefits. With an HSA, you’re not just preparing for today’s healthcare costs—you’re also investing in your future. Today we’ll walk you through everything you need to know about HSAs, whether it’s understanding how they work or tips on managing your account. Let’s jump in and make sense of it all together.

Understanding Health Savings Accounts

What is an HSA?

Think of an HSA as your personal healthcare piggy bank, but with a twist—it’s triple-tax advantaged! An HSA is a savings account specifically for those covered under High-Deductible Health Plans (HDHPs). The money you contribute to an HSA isn’t just yours to keep—it’s yours to grow, tax-free, and use for a wide range of medical expenses.

To open an HSA, you need to meet a few criteria:

  • Be enrolled in an HDHP.
  • Not have other health coverage.
  • Not be enrolled in Medicare.
  • Not be claimed as a dependent on someone else’s tax return.

One of the best parts? The money in your HSA rolls over year after year. There’s no “use it or lose it” rule, making it an excellent long-term savings tool​)​.

Key Features of HSAs

HSAs offer several key benefits that make them a cornerstone of a strong financial plan:

  1. Tax Benefits: Your contributions reduce your taxable income, the growth in the account is tax-free, and withdrawals for qualified medical expenses are also tax-free.
  2. Portability: Whether you switch jobs or health plans, your HSA moves with you.
  3. Contribution Limits: In 2024, individuals can contribute up to $4,150, and families can contribute up to $8,300. If you’re 55 or older, you can contribute an additional $1,000.  Visit the IRS website for more information.

Benefits of Having an HSA

Financial Advantages

An HSA offers unparalleled financial flexibility. Here’s why it’s a game-changer:

  • Triple-Tax Advantage: You get to save on taxes in three ways—when you contribute, as your account grows, and when you withdraw for qualified expenses.
  • Flexibility in Spending: Use your HSA funds for a broad range of medical expenses, from doctor visits to prescription drugs, and even over-the-counter items. Plus, after age 65, you can withdraw for non-medical expenses without penalty, although taxes will apply.
  • Long-Term Savings Potential: Since the funds roll over every year and earn tax-deferred interest, your HSA can grow into a significant asset for retirement​.

Healthcare Cost Management

Pairing an HSA with an HDHP can help you manage healthcare costs effectively. HDHPs usually have lower premiums, saving you money each month. The HSA covers your out-of-pocket expenses, helping you manage those high deductibles with tax-free dollars.

Qualified Medical Expenses

It’s crucial to understand what expenses qualify under your HSA to avoid unexpected tax penalties. For a detailed list of qualified medical expenses and to learn about potential tax penalties for non-qualified expenses, check out our qualified medical expenses page​.

How to Set Up a Health Savings Account

Eligibility and Enrollment

First things first—check if you’re eligible. As mentioned, you need an HDHP to open an HSA. If your employer offers an HSA, enrolling is often as simple as filling out a form. If you’re setting one up independently, you’ll need to select a provider, such as a bank or credit union, that offers HSAs.

Choosing the Right HSA Provider

Not all HSA providers are created equal. When choosing where to open your HSA, consider:

  • Fees: Some providers charge monthly maintenance fees, while others, like 1st Source Bank, offer fee-free accounts.
  • Investment Options: If you plan to grow your HSA funds, look for providers with a range of investment options.
  • Debit Cards and Checks: Many providers offer debit cards or checks linked to your HSA, making it easier to pay directly from your account.
  • Ease of Use: Online account management is crucial. Choose a provider that offers a user-friendly platform to monitor your HSA.

Initial Setup Process

Setting up your HSA involves a few straightforward steps:

  1. Gather Information: You’ll need your personal details and information about your HDHP.
  2. Choose a Contribution Amount: Decide how much you want to contribute. Remember, contributions can be made via payroll deduction, direct deposit, or a one-time deposit.
  3. Start Managing Your Account: Once your HSA is open, set up online access to manage your contributions and track your spending​.


Managing Your HSA

Contributions and Withdrawals

Contributing to your HSA is flexible. You can add funds through payroll deductions, direct deposits, or even one-time contributions. Withdrawals are tax-free when used for qualified medical expenses, which include everything from doctor visits to prescription eyewear.

Investment Options

One of the perks of an HSA is the ability to invest your funds in mutual funds, stocks, or bonds. This means your savings can grow over time, potentially giving you more money for future healthcare expenses—or even retirement.

Account Maintenance

Maintaining your HSA involves more than just monitoring contributions. Be sure to:

  • Track Expenses: Keep a record of all receipts for qualified medical expenses.  This is much easier if your HSA provider offers a debit card, checks, or online bill pay.
  • Avoid Penalties: Withdrawals for non-qualified expenses are subject to income tax and a 20% penalty if you’re under 65. Check out the qualified medical expenses page for more details​.

Where to Open an HSA

1st Source Bank offers a highly competitive HSA with no minimum deposit to open. Our online platform makes it easy to manage your account, track your contributions, and ensure you’re maximizing your savings. Opening an HSA with 1st Source Bank is straightforward—simply visit our HSA account page to get started.

Conclusion

HSAs are a versatile, tax-advantaged way to manage healthcare costs and save for the future. Whether you’re looking to reduce your current healthcare expenses or prepare for long-term needs, an HSA can be a valuable part of your financial plan.

Ready to get your healthcare costs under control? We’re happy to help you start your HSA journey and secure your financial future.