November is a pretty special month – the year is coming to an end, the weather is getting cozier, and of course, there’s Thanksgiving. But there’s another important thing about November that is celebration-worthy – it’s open enrollment season!
Open enrollment season is the period of time when employees can change or update their current healthcare plans, including medical, dental, vision, and more. They can also enroll or re-enroll in a dependent care flexible spending accounts. These changes generally come into effect come January 1st.
Health Savings Accounts
Some employees take advantage of open enrollment season to make their minds up about opening up a health savings account (HSA). An HSA is a tax-advantaged savings account designed to help people save for medical expenses that aren’t covered by high-deductible health plans (HDHP).
The HSA’s ownership lies with the employee, but the employer can also make contributions to it. According to the IRS, maximum contributions for the year 2023 are $3,850 for an individual and $7,750 for family coverage – having gone up slightly compared to the previous year.
These contributions, the HSA’s earnings, as well as payments made for qualified medical expenses from the account are all tax-exempted. Furthermore, contributions to the HSA are vested and unutilized funds can be carried forward to the next year.
Who is Eligible for a Health Savings Account?
Individuals who are covered under a qualified “High Deductible Health Plan” (HDHP) are eligible to enroll in an HSA. This is a healthcare plan that typically comes with lower monthly premiums but requires a larger annual deductible. As for 2023, the IRS has announced minimum deductible amounts for HDHPs to be $1,500 for self-only coverage ($100 increase from 2022) and $3,000 for family coverage ($200 increase from 2022).
What Many People Don’t Know About Health Savings Accounts
According to a survey conducted by Willis Towers Watson, around 82% of employers currently offer an HSA, and another 2% are considering adding it in the near future. Most people know that HSAs come with a triple tax advantage – i.e., tax exemptions from contributions, growth, and withdrawals – but there are a number of other features of HSAs that are much less known. So, let’s explore some of them!
Changes Can Be Made at Any Time
Employees can change their HSA contribution election at any point during the year. This is notable because it is unlike other pre-tax benefits such as medical coverage and healthcare flexible spending accounts which can only be amended during the year if the individual goes through an IRS-qualifying life event such as getting married or divorced.
Catch-Ups for Seniors
If you are 55 years or older, or if you will turn 55 by the end of 2023, you are eligible to add a further $1,000 to your HSA. This is a great way to boost your balance and save on pre-tax funds and can be a boon for seniors who typically tend to have higher medical expenses.
A lot of couples tend to contribute the family maximum to one spouse’s HSA, but only the account holder is allowed to make catch-up contributions. Therefore, if both spouses are over the age of 55, it might make more sense to open up individual accounts so each spouse can contribute up to $1,000 to each of their HSAs.
Adult Children Can Have Their Own HSAs
Once an adult child who is covered under an employee’s healthcare is no longer tax dependent on them, they are eligible to open up their own HSAs. The best part is that anyone can contribute to the account, making this a great way for parents to provide a safety net for adult children who are just starting out in their careers. Plus, this way, they are encouraged to prioritize their health and not worry about medical-related expenses.
HSAs Can Be Used for Other Large Expenses
HSAs are a great way to save money for large expenses down the line using pre-tax dollars and you’ll get a good return on your savings as well! As long as you can show receipts from earlier healthcare expenses to back it up, it doesn’t matter what you use the funds that have accumulated in your HSA. You can use your HSA funds to pay for college, make the down payment for a new house, or even go on your dream vacation!
HSA Funds Can Be Used by Dependents
The money in an HSA can be utilized by the employee, their spouse, and their dependents. It does not matter if any of these individuals are covered under the employee’s medical plan or not, they can still access the funds in the HSA.
