HSAs offer several advantages over other types of accounts. Here’s what you need to know:
Taxable Money Reduced
Any contributions made to an HSA account are automatically subtracted from whatever money an employee makes, thereby lowering an individual’s taxable income for the year.
Money Contributed to an HSA Rolls Over
Unlike Health Reimbursement Accounts (HRAs), HSAs allow any money that is placed in the account to roll over to the next year. This means that employees never “lose” the money they have contributed to the account, nor do they have a deadline by which they must use it. Instead, however much they contribute is always available and grows as long as it is being contributed to.
HSAs Cover Health Expenses & Future Investments
While most people spend their HSA-accrued money on medical expenses like coinsurance, copays, treatments, and deductibles, it can also be used to protect and grow future investments. These investments can come in the form of mutual funds, stocks and bonds, or other investment types like retirement.
There are three different types of health savings accounts: Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), and Health Reimbursement Accounts (HRAs). All are designed to cover an employee’s medical expenses in some way, but each operates differently. Here’s what you need to know to help you decide what is best for you to offer your employees:
Health Savings Accounts (HSA)
Employees own HSA accounts and receive many benefits from them including rollovers, tax benefits, and a wide range of investment options for their money. Additionally, they can be contributed to by an employee, their family, and the employer with interest being earned. This makes an HSA very appealing to the employee. For the employer, an HSA offers flexibility in plan design and reimbursements.
Flexible Spending Accounts (FSA)
Like HSAs, FSAs are employee-owned, but they can only be contributed to by employees and employers. Generally, they are limited to a $2,750 contribution and only $550 can carry over to the next year—providing that is an option the employer allows. The money held in an FSA accrues no interest, but all contributions are tax-free. Additionally, an FSA must be used alongside an employer-established health insurance policy.
Health Reimbursement Accounts (HRA)
HRAs tend to be the most unyielding option to employees, but they offer a great deal of protection and flexibility to employers. With an HRA, the employer owns the account and is the only party eligible to contribute to it. The money is tax-deductible but earns no interest and carries no rollovers.
While HSAs have many great benefits, there are also a few key considerations that should be acknowledged before investing in an account:
Any Money Withdrawn for Non-Medical Expenses is Taxable
While money put into an HSA will benefit an employee or employer when tax season rolls around, the money there isn’t entirely tax-free. If any money in the account is withdrawn to pay for investments, retirement, or other non-health-related costs, the money will be taxed.
The Older an Account Holder, the Harder Saving Can Be
Young professionals who are healthy and successful in their fields will have a marked advantage over older, less healthy professionals when it comes to saving for their HSAs. Often, groups that are not able to properly set aside money for their HSAs can find themselves in trouble when medical expenses come around, even with an HSA, because they haven’t been able to contribute enough cash.
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