Piggy bank and stethoscope

Figuring out how to pay for medical expenses can be daunting. A health savings account (HSA) allows you to put money aside to pay for medical expenses. HSAs also have certain tax benefits and allow you to pay for qualifying healthcare expenses tax-free.

But what exactly is an HSA, and who is eligible to open one?

Read our blog to learn more about the features, benefits, and requirements of HSAs.

What Is an HSA?

An HSA is a personal savings account designed to pay for certain healthcare costs for people covered under an HSA-qualified high deductible health plan (HDHP). An HDHP typically costs less than a traditional health insurance plan, so you can put the money you save on your insurance premiums into your HSA.

One of the key benefits of an HSA is that you can make tax-free contributions to your account. You can also withdraw money from your account tax-free. Your HSA contributions aren’t included in your taxable income for federal taxes. You can also use your funds to pay for eligible medical costs for your partner and dependents (if they qualify), even if they're not included in your HDHP coverage.

Like other types of savings accounts, you can earn interest (dividends) on your HSA funds. For example, you can earn 1.50% APY* on a Great Lakes Credit Union HSA. With an HSA, you can grow your savings over time.

And unlike a flexible savings account (FSA), you can save your unused funds for future expenses. Money in your account is always yours, even if you change employers or switch financial institutions.

Anyone can contribute money to an HSA. Typically, the account owner or their employer contributes to the account. However, there are limits on how much you can contribute to an HSA each year. The maximum amount you can contribute to your account each year depends on:

  • Whether or not you are eligible for a contribution, and if so, if you are eligible for a catch-up contribution
  • What type of HDHP coverage the owner has throughout the year (self-only or family)
  • How many months the HSA owner is covered by a qualified HDHP

Total contributions made by or on behalf of an HSA owner cannot exceed the annual contribution limit for the given year. For more information on contribution limits, check out IRS Publication 969.

What Expenses Can I Use My HSA For?

You can use your funds to pay for certain IRS-approved items, including:

  • Doctor’s visits
  • Prescription drugs
  • Eye exams
  • Dental work and orthodontia
  • Physical therapy
  • Hearing aids

With the flexibility an HSA provides, you can pay for your medical expenses through checks, debit cards, or transfers. You can check IRS Publication 969 for a full list of approved expenses. HSA funds used for non-qualified medical expenses are subject to income tax, addition to a 20% tax.

Am I Eligible for an HSA?

There are a few requirements you’ll need to meet to determine if you’re eligible to open an HSA. You can open an account if:

  • You’re covered under an HDHP
  • You’re not covered by any other health plan (like a spouse’s plan, for example)
  • You’re not a Medicare recipient
  • You cannot be claimed as a dependent on someone else’s tax return
  • You haven’t received veterans’ medical benefits in the previous three months

If you’re unsure if you’re covered by an HDHP, you can reach out to your insurance provider and ask. HDHPs must also meet certain requirements, which vary depending on if the HDHP covers just you, or your family, too.

Key Things to Know about HSAs

An HSA is a savings account that can be used to pay for certain healthcare costs, including doctor’s visits, eye exams, dental work, and more. HSAs offer certain tax benefits, including tax-free contributions and withdrawals and are available to people covered by HDHPs.

With an HSA, you can save and spend your funds in a way that works best for you. If you’re enrolled in an HSA-qualified HDHP, it’s never too late to open an account and start saving money to support your health and financial well-being.

As a not-for-profit credit union, GLCU promotes the financial well-being of our members. In addition to our educational resources and outreach efforts, we also give back to our members in the form of reduced or eliminated fees, higher savings rates, and lower interest rates on loans. Check out our rates and consider opening an HSA today.

The information in this post is for educational and informational purposes only and does not constitute investment advice. You should consult a licensed financial advisor before investing in any financial product or service.

* APY = Annual Percentage Yield. All dividend rates and APY may change at any time.

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