Webinar recap: 10 essential HSA questions answered

As healthcare costs continue to increase, many people are experiencing financial strain. In fact, about half of US adults say it’s difficult to afford healthcare costs.

Health Savings Accounts (HSAs) have the potential to play an important part in healthcare financial planning, allowing pre-tax dollars to pay for qualified medical expenses and offering a way for people to keep their healthcare spending in check.¹

During Financial Literacy Month, HealthEquity emphasized the importance of HSAs by hosting a webinar on top 10 ways to use an HSA.

From maximizing the triple-tax advantage to using HSAs as a springboard for retirement savings, the session focused on helping people make the most of this financial resource.

HSA motivators and future fund use

So, what drives people to enroll in an HSA? During the session, we surveyed around 2,600 HSA members and here’s what they said were their main motivators:

1. The ability to roll over funds year to year.
2. Free match/seed money from employers.
3. Building up long-term savings for retirement.

What’s more, with 32% of respondents looking to invest their HSA funds and 27% saving for long-term healthcare needs, it’s clear that members know HSAs are more than just a way to pay for current medical expenses—they can be a critical part of a long-term financial plan.²

In this post, we’ll explore the top 10 questions members raised during the webinar, sharing key insights to elevate your understanding of HSAs.

1. How can I start investing my HSA funds?

First, make sure your HSA balance meets your employer’s minimum requirement. A general investment threshold at HealthEquity is usually between $1,000 to $2,000. Then, choose your investments based on your risk tolerance and time frame, much like you would with a 401(k).

To start investing:

1. Log in to your HSA account.
2. Select the investment widget.
3. View your investment desktop to choose and manage investments.

2. What fees are associated with investing HSA funds?

According to Morningstar’s 2023 annual HSA report, HealthEquity has the second most competitive total investment fees in the industry. HealthEquity investment fees may include:

• Monthly investment administration fees: 0.03% billed monthly on your average daily invested balance, capped at $10 per month even as your invested balance grows. To find this fee, check the monthly investing fee box on the investment dashboard in your online account.

• Fund-specific operating expenses: HealthEquity offers 31 Vanguard mutual funds with a comparatively low expense ratio. Most of the funds we offer are rated 4- and 5-star by Morningstar. Be confident that no matter your selection, you’ll be investing in high-quality funds.

3. Can I use my HSA dollars if I’m enrolled in Medicare?

If you are 65 years and older, you can use existing HSA funds for qualified medical expenses for you, your spouse, and tax-qualified dependents. This includes Medicare premiums and deductibles, copays, and coinsurance.³ If you are over the age of 65, you will pay income tax on HSA dollars you spend on items that are not qualified medical expenses.

4. When should I stop contributing to my HSA if I’m retiring or going on Medicare?

To maximize your HSA benefits leading up to retirement and Medicare enrollment, consider stopping HSA contributions at least six months before you apply for Medicare. When you enroll in Medicare Part A, you receive up to six months of retroactive coverage, not going back more than your first month of eligibility. If you continue to make HSA contributions during this period, you may face a tax penalty.

5. Can I use my HSA for non-eligible expenses before age 65? What about after 65?

Before age 65, non-qualified expenses are subject to taxes and a 20% penalty. After 65, you’ll still pay taxes but without the penalty, making HSA funds more flexible in retirement.

6. What qualified medical expenses can I spend my HSA dollars on?

IRS Publication 502 provides a list of qualified expenses, from acupuncture to x-rays. Or check out our cheat sheet of commonly covered expenses. To find HSA-eligible products with ease, head over to hsastore.com to browse 2500+ items.⁴

7. When am I eligible to make catch-up contributions?

If you turn 55 by the end of the tax year, you can make an additional $1,000 contribution to your HSA every year as long as you’re still enrolled in an HSA-qualified health plan.

Here are two hypothetical examples of a married couple who want to take advantage of the 55+ catch up contribution.

If they each open an individual HSA, they can put in $4,150 plus the extra $1,000 catch up amount. If only one spouse has an HSA with family coverage, they can contribute $8,300 and the $1,000 catch up for themselves.

8. Can I change my HSA contribution amount during the plan year?

Unlike FSAs, you can adjust your HSA contributions at any time during the plan year. For example, if you have a major life event or medical procedure coming up, you can increase your HSA contributions as long as you stay within the annual limit.

9. What if I contribute over the yearly maximum contribution amount?

If you contribute more than the limit, you have to pay a 6% tax every year until you fix it. Consider taking out the extra amount or apply it to next year’s contribution limit to avoid penalties.

10. Who can I name as a beneficiary of my HSA?

You can name a spouse, children, other individuals, or a trust as the beneficiary of your HSA. If your spouse is your beneficiary, they can treat the HSA as their own and can continue to use funds for qualified medical expenses. Beneficiaries other than a spouse must include the full value of the HSA as taxable income in the year in which the account owner dies.

HSAs as a path to health and financial security

In a time of rising expenses and economic stress, HSAs have the potential to stand out as a lifeline for financial security. By fostering a nest egg for healthcare needs, they can empower people to take control of their health and financial future. Revisit the webinar to see the power of HSAs in action.