When to Stop HSA Contributions Before Medicare: Marcia Mantell of Mantell Retirement Consulting joins Lily Hamson to discuss the ins and outs of stopping contributions to an HSA before enrolling in Medicare.

A Health Savings Account (HSA) is a tax-advantaged savings account available to individuals enrolled in a high-deductible health plan (HDHP). HSAs are designed to help individuals save and pay for qualified medical expenses not covered by their health insurance plans, while also providing tax benefits.

Here are the key features of HSAs:

Tax Advantages: Contributions to an HSA are made on a pre-tax basis, meaning they are deducted from the individual’s gross income before taxes are calculated. This reduces the individual’s taxable income for the year, resulting in lower income taxes. Additionally, any interest or investment earnings on funds held in the HSA grow tax-deferred, and withdrawals used for qualified medical expenses are tax-free.

Ownership and Portability: HSAs are owned by the individual, not the employer, which means the account stays with the individual even if they change jobs or health insurance plans. Contributions to an HSA can be made by the individual, their employer, or both, and the funds belong to the account holder regardless of who contributes.

Contribution Limits: There are annual contribution limits set by the IRS for HSAs. These limits are adjusted annually for inflation. For 2022, the contribution limit for individuals with self-only coverage is $3,650, and for those with family coverage, it is $7,300. Individuals age 55 and older can make additional catch-up contributions.

Qualified Medical Expenses: HSA funds can be used to pay for a wide range of qualified medical expenses, including deductibles, copayments, coinsurance, prescription medications, dental care, vision care, and certain medical supplies. It’s important to note that expenses must be incurred after the HSA is established to be considered qualified.

High-Deductible Health Plan (HDHP) Requirement: To be eligible to contribute to an HSA, individuals must be enrolled in a qualified high-deductible health plan (HDHP). For 2022, the IRS defines an HDHP as a health insurance plan with a minimum deductible of $1,400 for self-only coverage or $2,800 for family coverage, along with maximum out-of-pocket limits of $7,050 for self-only coverage or $14,100 for family coverage.

Rollover and Investment Options: Unlike flexible spending accounts (FSAs), which have a “use it or lose it” rule, funds in an HSA can roll over from year to year and accumulate over time. Additionally, some HSA providers offer investment options, allowing account holders to invest their HSA funds in mutual funds, stocks, bonds, or other investment vehicles to potentially grow their savings over the long term.

HSAs can be valuable financial tools for individuals and families to save for current and future medical expenses while enjoying tax benefits. However, it’s essential to understand the rules and requirements associated with HSAs, including eligibility criteria, contribution limits, and qualified medical expenses, to maximize their benefits. Consulting with a financial advisor or tax professional can help individuals make informed decisions about using and managing their HSA funds.

Watch this video to learn when to stop HSA Contributions before Medicare and be sure to watch more videos on finStream featuring Marcia Mantell at this link: https://www.finstream.tv/featured/marcia-mantell/