How many financial terms have you heard thrown around but don’t really know what they mean?

The acronym “HSA” is commonly used when it comes to saving money for medical expenses, but many people’s understanding of the term stops there.

HSA stands for Health Savings Account. It’s a special savings account with funds you can use for qualifying medical expenses that your insurance plan doesn’t cover, such as deductibles, co-pays, and coinsurance.

HSA contributions are tax-free/tax deductible. This means that an individual’s annual taxable income does not include any of their HSA contributions, resulting in less money that is taxed overall. This is more money saved in the individual’s pocket, which is a long-term benefit to them.

The catch – there’s always a catch – is that not just anyone can open an HSA. To be eligible, an individual must meet certain criteria:

• They cannot be someone else’s tax dependent
• They cannot be entitled to or enrolled in Medicare
• They must be covered by a qualified High Deductible Health Plan (HDHP)
• They must not be covered by any disqualifying coverage

So, how does one start building their HSA? 

Typically, an employer with an HDHP will pair it with an HSA. If you meet all the qualifications, payroll deductions can go straight from your paycheck to your HSA. You can also open an HSA at an institution that offers them as long as you meet the requirements. You’ll usually receive a debit card or checks linked to your HSA account to use on qualifying medical expenses.

Important Notes About HSAs:

• The individual owns the account and money will roll over from year to year. It’s not “use it or lose it,” like a Flex account.
• There are government set limits as to how much an individual/family can contribute per year.
• There is free interest earned on the account – unless an individual makes excess contributions above the limit, which can be taxed up to 6%.
• The contribution amount to the HSA can be changed throughout the year
• Do not confuse HSAs with FSAs (Flex Spending Accounts) which are also tax-advantaged medical expense accounts. HSAs provide more flexibility in making changes and have more rigid requirements for eligibility.

Want to find out more about an HSA through GLFFCU? Click here or call 906-786-4623 to talk to someone today.