Health savings accounts (HSAs) allow employees to save and build wealth for future medical costs. HSAs are an incredibly advantageous tool for employers and employees alike, but only if they’re used the right way. Let’s look at how employers and employees make the most of their HSAs.
The Benefit of an HSA
One of the biggest benefits of using an HSA is that the contributions are tax-deductible. That means that any money contributed to the HSA isn’t subject to income or payroll taxes—which can mean huge savings in taxes each year! Not only that, but earnings from investments within the HSA aren’t taxed either.
How To Use an HSA
To maximize the benefits of an HSA, make sure to use it exclusively for qualified medical expenses like copays and prescriptions. If it’s used for non-qualified purposes, then the HSA owner will have to pay taxes plus penalties on those withdrawals. Also, keep in mind that using an HSA as a savings account rather than a checking account may be more beneficial since there is no expiration date on your contributions; however, HSAs do have contribution limits each year based on whether you have individual or family coverage. So plan wisely and space out your contributions so they don’t exceed the maximum limit each year!
Contribute as Much as You Can
The more money you contribute to your HSA each year, the more you will benefit from it in the long run. Money contributed into your HSA is not only tax deductible, but also grows tax-free, like a traditional IRA. Additionally, any unused money rolls over from year to year so you don’t have to worry about losing it if you don’t use it right away.
Use Your Money Wisely
It’s important to remember that HSAs are intended for medical expenses only – if used for non-medical expenses before age 65, there will be penalties imposed by the IRS plus income taxes owed on what was withdrawn from the account. To avoid this penalty, make sure you keep track of all of your medical expenses throughout the year so that you can utilize them when needed without having to pay any additional taxes or fees later on down the line. It’s also helpful to set up reminders throughout the year so that you don’t forget about any eligible medical expenses while they’re still fresh in your mind!
Invest Your Contributions
Most HSAs come with investment options such as mutual funds and stocks that are managed by the employer. Take advantage of these options and invest your contributions whenever possible. It’s important to note that the amount of money you are able to invest usually depends on how much money you’ve accumulated in your HSA accounts; generally speaking, most employers will require at least $1,000 before they allow investing. Investing now will help make sure your savings grow over time and give you more flexibility when it comes time for retirement planning down the road.
How Employers Can Help Their Employees Maximize Their HSAs
Employers can help their employees maximize their HSAs by making sure they understand how HSAs work and helping them set up their accounts properly. Employers should provide clear information about how much money employees can contribute to their HSAs each year and what type of investments are allowed within those accounts. They should also make sure that employees understand which types of medical expenses qualify for reimbursement through an HSA and which do not—this will ensure that they don’t accidentally withdraw funds prematurely or incur unnecessary taxes or penalties on withdrawals not related to eligible medical expenses.
Employers should also consider offering incentives such as matching contributions or discounted premiums on health insurance plans if employees choose to use an HSA instead of a traditional health care plan. These incentives can help encourage healthy financial habits among employees while allowing them to maximize their savings potential with an HSA account.
HSAs Are A Win For All
For employers and employees alike, health savings accounts are a great way to save for future medical costs while taking advantage of tax benefits now. By providing clear information about how HSAs work, offering incentives for using them, and helping employees set up their accounts properly, employers can ensure that their employees get the most out of these powerful tools. With proper planning, both employers and their staff members can maximize their HSAs.
