A big advantage of having a health savings account is that anyone can put money in it, including your husband and other family members. If your employer provides an HSA program, that’s even better, because it may kick in an amount. This is similar to how a 401(k) plan works. Another benefit of having a HSA is if you quit your job, you get to keep your account.
Your HSA is established in your name, so you own it. If you leave your job, your money still belongs to you. Although others can fund your account, there can only be one owner. For instance, if you and your husband want to have an HSA, you both have to open your own accounts. To keep funding your account, you must have coverage under a high deductible health plan. You also can’t be enrolled in Medicare, no one else is allowed to claim you as a dependent on their tax return and you typically can’t have any other health coverage besides a HDHP. As of 2013, the Internal Revenue Service says you can squirrel away up to $6,450 for family coverage and up to $3,250 for individual coverage in your HSA. That’s including your employer’s contributions.
Self-employed people can establish HSAs and take a deduction on their tax return. Employees, however, get to fund their account with pretax money. This means you don’t pay federal income tax, Social Security tax, Medicare tax and possibly state income tax on your payroll deductions. It also means you can’t take a deduction on your tax return since you already got one when your employer subtracted the money from your gross wages. Any matching funds your employer gives you are also tax-free.
To keep putting money in your HSA, you must have a HDHP either through an insurance policy you bought on your own, through your new employer or through your former employer’s Consolidated Omnibus Reconciliation Act’s plan. COBRA lets you keep receiving healthcare benefits under your old employer’s plan after you’ve left the company. It also makes you eligible to keep funding your HSA or to open a new one. To keep making pretax or after-tax contributions to your HSA, you must have a HDHP. If not, you can keep using the funds in your account, but you can’t put any more money into it. Also, if your old employer covered your HSA administration cost, you might be responsible for that fee after you’ve quit.
You can invest the money in your HSA in stocks, certificate of deposits, annuities or mutual funds. Investment options vary by provider. For instance, to invest in the provider’s mutual funds, you might need a minimum balance in your HSA, such as $2,000. If you have a retirement plan or health flexible spending account, you might be able to roll over a certain amount in those plans into your HSA.
The money in your HSA rolls over from year to year and stays there until you use it. You don’t pay federal taxes on your interest and earnings, but state taxes may apply. You can withdraw your money any time you want, as long as you use it for qualified medical reasons. If not, you might have to pay a 20-percent penalty plus income taxes on the withdrawal.
- Society for Human Resource Management: For 2013, Higher Limits for HSA Contributions and Out-of-Pocket Expenses for High-Deductible Plans
- Office of Personnel Management: Health Savings Accounts
- Society for Human Resource Management: Health Savings Accounts
- Tango Health: What Happens to Your HSA if You Leave Your Employer or Retire?
- Health Equity: Health Savings Accounts (HSA)–Frequently Asked Questions
- Sterling Health: Contributions to HSAs
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.