Health Savings Account

A health savings account, or HSA, is a popular way to manage your healthcare costs, especially as insurance premiums continue to rise. Is an HSA right for you? It's difficult to say without knowing the details of your situation, but HSAs offer various features that should benefit almost anyone. If you're eligible for an HSA, it's worth considering how this type of savings account may help you financially prepare for your healthcare needs.

What Is An HSA?

An HSA is a savings account that allows you to pay for medical or healthcare needs while offering tax advantages. If the deposits into the HSA are made automatically through payroll deduction, the funds are not taxed. If the deposits are made through a post-tax contribution from another source, those contributions are tax-deductible at the federal level and potentially at the state level.

You'll earn interest on your HSA balance like any savings account. The interest is tax-free, and any money spent from your HSA remains tax-free as long as it's used for qualified medical expenses.

Am I Eligible for an HSA?

Not everyone is eligible for an HSA. You must be enrolled in a high-deductible health plan (HDHP) to open an HSA or contribute to it. If you're unsure your health insurance plan qualifies, consult your employer's Human Resources department or your insurance agent.

You may be ineligible for an HSA if you are enrolled or using Medicare benefits, a claimed dependent on another person's taxes, or covered by someone else's health insurance coverage, such as a spouse's insurance through their employer. The only exception to the latter point is if the insurance is a qualified high-deductible plan.

Beyond eligibility requirements, there are also limits on how much can be contributed to an HSA each year. All HSA contribution limits include those made by both you and your employer.

• For single coverage, you could contribute up to $4,150 in 2024.
• For family coverage, you could contribute up to $8,300 in 2024.

What are the Benefits of an HSA?

The most significant benefits an HSA offers are the tax advantages mentioned above, as contributions made directly from a payroll deduction are tax-free. Post-tax contributions can be deducted from your year-end taxes. The earned interest in your HSA is also tax-free. Finally, as long as you use your HSA on qualified medical expenses, any money spent from your HSA remains tax-free.

With most employer-based insurance coverage, you lose coverage when you leave your job. While you may have access to coverage through COBRA, the premiums tend to be much higher without your employer's contributions. However, HSA funds can be used on insurance premiums through COBRA or an independent offering. Even if you leave your job, you can use tax-free funds to help pay for new insurance coverage.

When you open your HSA at First Mid, you receive numerous benefits, including:

• Fee-free enrollment
• No minimum balance to open
• Debit card, online banking, and bill pay access
• Self-directed investment options available

What are Qualified Medical Expenses?

Since HSAs involve tax advantages, the list of qualified medical expenses is governed by the IRS. View the IRS website for the complete list.

It's important to note the list is subject to change and you may have to pay a 20% tax penalty if you use HSA funds for non-qualified expenses. Furthermore, some expenses may have additional eligibility requirements. If you're unsure whether an expense qualifies, consult a tax advisor.

You'll find most healthcare needs represented. The list includes items that make medical treatment easier, such as some travel expenses for medical care and improvements to a car or home should one be disabled or have special needs.

A list of ineligible medical expenses tends to include procedures or treatments that aren't typically medically necessary, such as cosmetic surgery, hair transplants, or teeth whitening. Other areas of ineligibility include general household help, personal items, or veterinary care. The IRS website also contains a complete list of ineligible expenses.

How Much Should I Contribute to My HSA?

The general rule of thumb is to max out your contribution limit each year. Of course, there are times when that may not be to your advantage, or you may not be in a place financially to meet that limit.

One of the best ways to see how your contributions take shape over the course of your HSA's lifetime is to use our HSA Contributions Calculator as well as our HSA Savings Calculator (see down below). These tools can help you plan for expected medical events, such as a new baby, and make it easier to determine whether you will or will not meet your financial goal in time.

If you aren't able to maximize your contributions each year, you should still add what you can. If your employer doesn't offer dental or vision coverage, it makes sense to contribute at least your monthly premium amount. Since that's money you'll be spending anyway, you can take advantage of the tax-free feature of HSAs.

HSAs also offer a distinct difference from similar account types, such as flexible spending accounts. FSAs have a "use it or lose it" feature, meaning any unspent funds are inaccessible once the new year begins. That's not the case with HSAs. Any unused balance rolls over at the end of the year, just as a typical savings account would, eliminating any fear of "losing" contributions if they go unused throughout the year.

HSA Calculators

Our HSA Contributions Calculator is the key to determining your maximum total contribution based on a few fast facts.

Our HSA Savings Calculator is the best way to determine your HSA's potential value over time. By calculating the time left to retirement along with your current balance, HSA contributions, and healthcare expenses, you can get a bird's eye view of the total account growth over time. This helps you plan different scenarios for your savings and retirement.

How Can First Mid Help?

At First Mid, we make opening an HSA an easy, fee-free process, and bankers can help you plan for expected medical events.

Contact us by calling 855-968-3397 (Lively or 877-888-5629 Customer Support Center). We can assist you with opening an HSA and help you prepare for current and future healthcare spending. Get started today!

This content is for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting, or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

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