If you’ve come across the term HSA during an annual healthcare enrollment period, you may have been confused about how you might best use this type of account, or if it’s worth opting into at all. More and more people are utilizing their Health Savings Account (HSA) as a long-term financial tool as well as a healthcare plan—but why?
HSAs are tax-advantaged savings accounts that allow individuals to earmark money specifically for medical expenses. Whether covering deductibles, paying for medical services, or purchasing prescription medications, HSAs provide the means to directly manage health expenses so that account owners can take control of their healthcare decisions. An added benefit? HSAs can be used to save up for medical expenses both while you’re earning an income and during retirement.
Let’s talk more about how to utilize HSAs and why they may be a good choice for you.
Why Set Up an HSA?
HSAs may be a worthwhile choice for two primary reasons. The first is to have a more hands-on approach to healthcare choices. The second is to take advantage of the tax implications.
HSAs function as bank accounts for healthcare funds, through which you can direct how and where your medical expenses are paid. They can serve as a kind of healthcare safety net for professionals as they move between jobs, or to cover unexpected or unusual medical conditions. An additional advantage: studies show that individuals with more control over their healthcare spending are more likely to seek preventative care, which may reduce long-term healthcare costs.
Funds that are contributed to an HSA are not subject to federal income tax. This means your employer doesn’t withhold taxes on HSA contributions. However, funds used for non-qualified expenses are subject to taxes and potential penalties.
It’s important to understand some of the limitations of HSAs as well, including eligibility. A key requirement is that HSAs are only available to individuals enrolled in a High Deductible Health Plan (HDHP). Specifically, for 2025, HDHPs have a minimum deductible of $1,650 for individuals and $3,300 for families. These plans may require you to pay more out-of-pocket, which could be a disadvantage depending on your financial and medical needs. Also, some financial institutions may charge fees for HSA maintenance or transactions.
The Internal Revenue Service (IRS) provides further information about eligibility requirements, which, for instance, may exclude those enrolled in Medicare, so consider consulting a tax advisor.
What Medical Expenses Qualify Under an HSA?
HSAs can be used for various types of medical expenses, such as:
- Deductibles – HSAs can be used to pay for the deductible of a high-deductible health plan. This can help individuals meet their out-of-pocket expenses before their insurance coverage kicks in.
- Medical Services – HSA funds can be used to pay for doctor visits, hospital stays, surgeries, and other medical procedures. This can help individuals budget and plan for their healthcare needs.
- Prescription Medications – Individuals can use their HSA to pay for prescription medications, including both brand-name and generic drugs. This can include prescriptions for the HSA account owner or anyone tax dependent on them, such as spouses and children.
- Over-the-Counter Items – Some over-the-counter items, such as bandages, first aid kits, and other seasonal purchases (such as allergy relief and flu shots) can be purchased using HSA funds.
- Long-Term Care Expenses – In some instances, HSA funds can be used to pay for long-term care services. This can be a valuable resource for individuals planning their future healthcare needs.
Common exclusions include unprescribed items like fitness equipment, vitamins, or cosmetic procedures; however, it is your responsibility to understand your specific plan guidelines. If in doubt, consult with your HSA provider or tax advisor.
How to Set Up an HSA
If you’re eligible and enrolled in a qualified HDHP, you can open an HSA much like you would a traditional bank account. Your financial institution or employer can guide you through the account-opening process, which may include requirements such as proper identification and a signed HSA eligibility form from your insurance provider. Ince set up, you can begin contributing funds and managing them through your HSA account.
The IRS may require proof that your withdrawals meet HSA qualifications, so it’s smart to store receipts and relevant records for future reference. IF you would like assistance keeping these records organized, there may be tools provided by your employer, healthcare provider, or financial institution that can help.
Do HSAs Expire?
Unlike a Flexible Spending Account (FSA), HSAs do not expire. Your funds roll over year after year, even if you switch jobs, pause contributions, or retire. You own the account and can continue to use the funds for qualified medical expenses at any time.
There are no income limits for opening an HSA, and while the IRS caps annual contributions, there’s no limit to how much your account can grow over time. And if your HSA is held at an FDIC-insured institution, your funds are protected up to the federal insurance limit per depositor category.
Final Considerations
In the last decade, HSAs have grown significantly in popularity. According to the Consumer Financial Protection Bureau, over 36 million HSAs exist today, with a combined value exceeding $116 billion—an 500% increase in value since 2013.
Still, HSAs may not be right for everyone. Carefully evaluate your health needs, income, and potential out-of-pocket costs, and consider speaking to your human resource department or a tax advisor to weigh your options or for questions about eligibility.
If you’re ready to take control of your healthcare spending, SouthEast Bank can be a helpful partner. Explore our online resources, then stop by your local branch to open a Health Savings account at your convenience.
Information contained in this blog is for educational and informational purposes only. Nothing contained in this blog should be construed as financial, legal or tax advice. An attorney, financial advisor, and/or tax advisor should be consulted for advice based on your circumstances.
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