HSAs have experienced significant growth in recent years. Devenir, a national research company, published their 2016 survey results in February 2017 and found that HSAs assets grew by 22 percent in 2016. They estimate that total HSA assets will continue to increase for the foreseeable future.
Despite all of this growth, there are some persistent myths about HSAs that may cause some people to hesitate in opening an account and miss out on the advantages that HSAs provide. The following are facts that answer fictions related to HSAs:
1. Myth: HSAs are too expensive and only work for wealthy people
Fact: HSAs can save accountholders money and almost anyone can benefit from an HSA
The tax advantages that come from HSAs alone can potentially save people thousands of dollars over the life on an HSA. Because accountholders can contribute to, grow, and distribute HSA funds (for qualified medical expenses) all tax-free1, the savings add up quickly. And those savings are available no matter the income level of the accountholder. Keep in mind that HSA-qualified health plans also tend to have lower premiums than their traditional counterparts that don’t qualify for an HSA.
2. Myth: A Flexible Savings Account (FSA) can work just as well as an HSA.
Fact: HSAs provide many benefits that FSAs do not have.
One of the most important differences between HSAs and FSAs is time. With FSAs, the accountholder must use all the funds in the FSA by the end of the year or they lose it (some plans now allow a small carryover, but that is limited to $500 annually). HSA funds are rolled over year after year with no maximum balance, which means accountholders can potentially grow the funds with interest and investing.
3. Myth: HSAs are not worth the down side of the healthcare costs that come with having a high-deductible health plan.
Fact: Having a high-deductible health plan can save people money.
In most cases, having a high-deductible health plan means lower monthly premiums. The savings can be contributed to the HSA (up to the annual limit) which provides accountholders with the opportunity to save money for future qualified medical expenses.
4. Myth: Opening an HSA right now is not a good idea because of the partisan bickering about healthcare in Washington.
Fact: Currently, HSAs are one of the solutions to healthcare that both sides have supported.
Both Republicans and Democrats have found common ground about HSAs. In fact, the bill Republicans put forward to overhaul the Affordable Care Act included increases in the amount people can put in their HSAs. Whether that overhaul comes to pass remains to be seen, but the silver lining is that HSAs, at least currently, are already available to millions of Americans today.
5. Myth: I’m too old (or young) to benefit from an HSA.
Fact: HSAs can benefit almost anyone, no matter what stage of life they are in.
Because HSA funds roll over every year, the opportunity to grow the funds in the HSA (through interest and investing) is available to almost anyone, at any age — though there are some additional rules that govern HSAs the closer people get to retirement age.2 For example, retirees who use Medicare can no longer contribute to their HSA after taking Medicare, but they can still use the funds in their account to pay for qualified medical expenses. On the other hand, those 55 of age and older can contribute an additional $1,000 above the annual contribution limit each year until they are 65.
Those who are younger have even more time to contribute and grow HSA funds, which has the potential to provide additional retirement benefits alongside a 401(k) or other retirement plan.
Don’t let unfounded myths about HSAs lead you to hesitate in taking advantage of the many benefits that come from these accounts. To learn more about how HSAs can benefit you (and to debunk other myths about HSAs), visit HealthEquity.com/HSAlearn
1. HSAs are never taxed at a federal income tax level when used appropriately for qualified medical expenses. Also, most states recognize HSA funds as tax-free with very few exceptions. Please consult a tax advisor regarding your state’s specific rules.
2. It is the member’s responsibility to ensure they meet HSA eligibility requirements as well as if they are eligible for the plan and expenses submitted. One should consult a tax advisor as individual factors and situations vary. HealthEquity does not provide legal, tax, financial or medical advice.
Nothing in this communication is intended as legal, tax, financial, or medical advice. Always consult a professional when making life-changing decisions.