Although the past 10 months have been an incredibly tough time in financial markets, health savings accounts are alive and well. In fact, HSA contributions and withdrawals rose significantly in the first half despite a bear market, according to a mid-year study by Devenir Research.
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“We had seen fairly moderate growth in HSA contributions and withdrawals during the pandemic,” said Jon Robb, senior vice president of research and technology at Becoming. “It started to pick up a bit at the end of 2021. But we’ve really seen it bounce back in the first half of this year. It’s a good sign to see people committing to these accounts.”
A health savings account allows account holders to contribute pre-tax dollars to cover eligible medical expenses. These include deductibles, co-payments, coinsurance and other expenses. You must have a High Deductible Health Plan (HDHP) to qualify for an HSA account.
This special report, which includes the 13 Best HSA Accounts for 2023marks the sixth IBD history package on the rules and use of HSA accounts.
An HSA research leader, Becoming reported that HSA assets reached $98.8 billion as of June 30, an increase of 6% compared to the previous year. The number of accounts increased by 9% to nearly 34 million. Account holders paid in more than $26 billion and withdrew $18 billion in the first half of this year, an increase of 11% and 12% from the previous year, respectively.
While these numbers look encouraging, more good news is that contribution limits are increasing for 2023. Indeed, HSA investors and savers will be able to contribute $3,850 for an individual (up $200 from 2022) and 7 $750 per family (up $400 from 2022), per IRS 2023 Rules for HSAs.
HSA premiums: coverage for high medical costs
With skyrocketing health care costs hitting American households, anything that helps people save on medical bills is good news. And this is especially true for HSA accounts, which offer triple tax benefits to contributors: tax-deductible contributions, tax-free investment growth, and tax-free spending (at the federal level) on eligible medical expenses. now and throughout the retreat. State tax rules for HSAs vary.
Fidelity Investments estimates that a 65-year-old couple retiring today will need an average of $315,000 for medical expenses throughout retirement. Single retirees will need $150,000 for men and $165,000 for women. These are huge and frightening numbers.
It’s getting worse. A staggering 70% of Fidelity survey respondents felt unprepared to cover these expenses in retirement when told the amounts.
The good news? Nearly half of those with HSAs felt prepared. Of those without an HSA, only 27% feel ready.
HSA Eligible Health Plan Rules
Also up in 2023: HSA-eligible health plan deductibles and maximum outlays. For an individual, the plan deductible must be at least $1,500 (up $100 from 2022); for a family $3,000 (up $200 from 2022). And eligible plans must not exceed the maximum payouts: $7,500 (up $450 from 2022) and $15,000 (up $900 from 2022) for an individual and family, respectively.
Affordable Care Act health plans have a separate set of limits, excluding grandfathered plans. The maximum disbursements for an individual and a family are higher, at $9,100 and $18,200, respectively. Finally, people age 55 and over are eligible for catch-up contributions of $1,000 in 2023, as in 2022.
Both employees and individuals can contribute to the HSA. Additionally, an employer can choose to top up an employee’s contribution, as with 401(k) plans. And parents and grandparents can also contribute to a beneficiary’s HSA account. In this case, the beneficiary can still deduct the contributions from his taxes. The total amount of contributions cannot, however, exceed the annual limits set for the year.
Many employers begin open enrollment in November for the following plan year. But you can enroll in an HSA at any time, as long as you have an HDHP.
So even if you missed the open enrollment period or are self-employed, you can still open an HSA. You can contribute money to an HSA account from the previous year until the tax filing deadline of April 15 of the following year.
Our 13 Best HSA Accounts for 2023 can help you choose a plan. This year’s list includes giants like loyalty and small suppliers such as Liberty Federal Credit Union.
Medical expenses covered
Beware of the many myths and misconceptions about what you can and cannot do with an HSA – read our Top 10 HSA Misconceptions, HSA Rules 2023. It is important to know that you do not have to join your employer’s plan. You can switch to another HSA account provider or add more HSA plans over time.
As for what the IRS considers allowable medical expenses, the list keeps growing every year, which makes HSAs all the more appealing. In addition to covering copayments, doctor visits, and prescriptions, HSA funds can also be used to reimburse dentists, pay for preventative care, cover medical imaging, and pay for non-prescription drugs and treatments. covered by your health insurance.
HSA-eligible expenses include acupunctureacne laser treatment, ambulance and emergency care, birth control pills, blood pressure monitors, hearing aids, infertility treatment, drug and alcohol treatment, allergy medication, painkillers, smoking cessation products , thermometers, vasectomies and wheelchairs.
Pending HSA Legislation
Telemedicine is another benefit that may be here to stay. First introduced in 2020 during the pandemic, the rule has been extended several times. Now it’s part of a bipartisan bill to make it permanent. The Law proposition provides first-dollar telehealth HSA coverage with no deductible.
Additionally, the recently passed Cut Inflation Act provides a safe harbor for insulin products, says Nicky Brown, vice president of advocacy and government affairs at EquityHealth (HQY). “(It) allows HSA-qualified (insurance) plans to cover insulin and related products below the plan’s deductible.
“Many employers already offer (help with the cost of) insulin in their (insurance) programs. This legislation would codify insulin practice,” Brown said. In other words, HSA/high deductible health plan holders would not have to pay their high deductibles before getting insulin coverage. Instead, with some insurance plans, they will pay a co-payment for insulin that is lower than the deductible, without disqualifying the plan as a high-deductible HSA qualified plan.
In addition to paying HSA dues, savvy consumers use their HSAs to cover routine and unexpected medical expenses, as well as to invest in the future.
“I’ve had an HSA account for five years now,” said Kelly Zimmermann of North Bend, Wash. His account is with HealthEquity. “My employer invests quite a bit, and then I try to at least match that every year.”
Zimmerman says she keeps $1,000 of cash in the account and invests the rest. “We’re a family of four, so we use it all the time to cover prescriptions, over-the-counter meds, copays, and doctor visits until I hit my deductible,” a- she declared. “I really like knowing that an ER visit won’t crush my monthly budget. And the (remaining) HSAs (funds) carry over from year to year. I like to grow it as much as possible for future costs unexpected.”
Spend or invest your HSA contributions?
While HSAs are great spending vehicles, account holders can invest the money and let it grow tax-free. Depending on the account provider, HSAs can invest in stocks, ETFs, or mutual funds. With interest rates rising sharply this year, several HSA providers are also offering very attractive savings rates.
“We’ve seen more people invest in the past few years,” said Begonya Klumb, head of HSAs at Fidelity. “If we hadn’t had a bear market, you would have seen the invested portion of HSA’s assets grow twice as much as the overall asset.”
Becoming reported that HSA investments rose 2% year-over-year to $31 billion at the end of June. This represented 31% of all HSA assets. HSA investment accounts held an average total balance of $16,220, which is 6.8 times higher than the average account balance of a non-investment account holder.
“An HSA can be a huge resource for retirement planning,” said Kevin Crain, retirement research and insights manager at Bank of America (BAC). Employers should educate their employees about the long-term benefits of an HSA: “Employees can leave money in an HSA and invest it and it will become a great asset to them in the long run,” Crain said.
To help spenders and investors, HSA providers have been adding more and more features. From fractional stock investing to innovative apps, all-in-one accounts, a self-directed brokerage option, or professional management, contributors have plenty of options to choose from.
The underlying trend is that the investment portion of HSAs continues to rise, Fidelity’s Klumb said. “Generally, we find that people who invest also tend to have higher balances.”
Klumb added, “It’s all part of awareness and education. When people understand the value of an HSA, they save more and invest more.”
Click on here to view IBD’s 2021 list of the best HSA accounts.
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