The Power Of Health Savings Accounts

Twenty years have passed since the inception of Health Savings Accounts (HSAs) under the 2003 Medicare Modernization Act, yet many still regard HSAs as one of the best-kept secrets in managing healthcare and retirement funds. As healthcare costs and insurance premiums climb, HSAs continue to offer a valuable method for managing medical expenses.

HSAs are particularly beneficial for healthy individuals seeking greater control over their healthcare finances, providing significant tax benefits along the way.

More and more, employers are recognizing the value of HSAs, incorporating them into their employee benefits packages. HSAs empower users to save money by comparing and selecting healthcare providers and services judiciously, maximizing the value of their accounts.

Understanding HSAs[i]

HSAs function similarly to traditional IRAs, with pre-tax funds going into the account. The growth of these funds is tax-deferred, and withdrawals for qualified medical expenses are tax-free. This combination of pre-tax contributions, deferred growth taxes, and tax-free withdrawals creates a compelling tax benefit for users.

Contributions to HSAs

Employees can opt to divert a portion of their earnings, before taxes, directly into their HSAs. Those with HSA-eligible insurance plans can also enjoy these triple tax advantages, although direct cash contributions must be reported on tax Form 8889. This is important because these contributions aren’t counted towards the 7.5% threshold for medical deductions on Schedule A.[ii]

In 2024, individual HSA contributions are capped at $4,150, and family contributions at $8,050, which includes any employer contributions. Individuals 55 or older can make an additional $1,000 in catch-up contributions. Contributions can be made up until the tax filing deadline on April 15, 2024. [iii]

Eligibility for HSAs[iv]

To qualify for an HSA, you must not be covered by any other health plan, including Medicare, and you cannot be claimed as a dependent on someone else’s tax return. Additionally, you must be enrolled in a high-deductible health plan (HDHP).

High-Deductible Health Plan Requirements

For 2024, HDHPs require a minimum deductible of $1,600 for individuals and $3,200 for families, with maximum out-of-pocket costs of $8,050 for individuals and $16,100 for families. These costs include deductibles, copayments, and coinsurance.[v]

Benefits Over a Lifetime[vi]

Unlike Flexible Spending Accounts (FSAs), HSAs do not have a “use it or lose it” policy. Unused funds automatically roll over each year and can continue to do so through retirement. At age 65, funds can be used for any purpose, although non-medical withdrawals will be taxed as income.

Furthermore, HSAs are portable; you can keep your account if you change employers, provided you continue to meet the eligibility criteria.

Tax Benefits Summary

HSAs offer a host of tax benefits: deductible contributions, tax-free employer contributions, tax-deferred earnings, and tax-free withdrawals for eligible expenses.

HSA Planning Opportunities

The only thing better than the tax advantages is the flexibility of HSAs and the planning opportunities they create. With the ability to rollover unused funds at year-end, an HSA can significantly add to your retirement capital, which can be particularly beneficial as you anticipate your healthcare spending to rise.

Of course, planning ahead with an HSA is difficult because you can’t know how much of the funds will be used for medical expenses. However, knowing you can use any remaining funds at retirement should be an incentive to shop your medical care to keep your costs as low as possible.

In addition, it would be essential to work with your financial advisor to ensure you completely understand HSA eligibility, deductibility, and applicability in your situation and whether it would be the best fit for you and your healthcare needs.

At Willamette Wealth Partners, we help couples and individuals about to leave the workforce plan for their best life chapter yet—retirement. From retirement planning to investment management and financial planning services, we are focused on providing you with a relationship that fosters growth, confidence, and independence. If you’re interested in meeting with one of our Eugene, Oregon based financial advisors, go ahead and schedule your complimentary 30-minute introductory meeting here. We can’t wait to meet with you.

 

Written by Adam Coughlin and Locke Bielefeldt in collaboration with Lexicon Advisor Marketing.

 

[i] https://www.investopedia.com/terms/h/hsa.asp

[ii] https://www.irs.gov/publications/p969

[iii] Ibid.

[iv] https://www.investopedia.com/terms/h/hsa.asp

[v] https://www.investopedia.com/articles/personal-finance/012716/how-highdeductible-health-plans-work.asp

[vi] https://www.investopedia.com/articles/personal-finance/091615/how-use-your-hsa-retirement.asp

Heather Dopp

Operations Manager

Heather grew up in Sun Valley Idaho and moved to Eugene in 2001. She has a bachelor’s degree in business administration from the Lundquist College of Business at the University of Oregon. Before joining the Willamette Wealth Partners team, Heather worked as an office manager. In her past role, her biggest accomplishment was assisting her company in becoming the second business in Lane County to achieve Voluntary Protection Program status from Oregon OSHA.

Heather and her husband Josh have a daughter named Leila. Heather’s biggest passion is spending time with her family and traveling to new places. She loves rafting, fishing and exploring Oregon rivers with her friends and family during the summer months. Heather also enjoys cooking and trying all kinds of cuisines from around the world.

Adam R Coughlin

Certified Financial Planner™

Adam began his career in financial planning in 2019 in Rochester, Illinois, working for an investment advisor and retirement education company before moving to Oregon to work at Willamette Wealth Partners. Prior to his career change, Adam worked in information technology and insurance.

Adam graduated from Illinois State University with a B.S. in Finance as well as a minor in Financial Planning and was chosen by faculty as ISU’s Outstanding Senior in Finance and Outstanding Financial Planning Student for his graduating class. In 2021, he placed Top 5 in the Financial Planning Association’s Case Study Competition. He is a CERTIFIED FINANCIAL PLANNER™.

Outside of work, Adam enjoys fishing, going to the gym, playing with his two Siberian Forest Cats, and exploring new restaurants with his amazing wife Kelsey.

Locke Bielefeldt

Certified Financial Planner™

Locke grew up in the Willamette Valley, where he watched his father, Doug, build a thriving financial planning business. After witnessing the impact, a financial planner can have on client’s lives, Locke became inspired to seek a BBA in finance at The University of Portland.

Before returning to his hometown of Eugene, Locke worked in leadership and consultant roles focused on small business and startup finance. He now assists clients in pursuing their financial goals through independent and collaborative advice, customized investment strategies, and financial planning.

Outside of work, Locke enjoys traveling, cooking all kinds of foods, reading science fiction, and spending time with his wife, Amelia.

Locke has been listed in Forbes’ “Top Next-Gen Wealth Advisors Best-in-State” for 2023 as well as Forbes’ “Best in State Wealth Advisors” for 2024.

The Forbes Best-in-State Wealth advisor ranking, developed by SHOOK Research, is based on in person and telephone due diligence meetings and a ranking algorithm that includes: client retention, industry experience, review of compliance records, firm nominations; and quantitative criteria, including: assets under management and revenue generated for their firms. Portfolio performance is not a criterion due to varying client objectives and lack of audited data. Neither Forbes nor SHOOK Research receives a fee in exchange for rankings.