Our previous Blog Post from June 1, 2023, answered the question, Is a Health Savings Account (HSA) right for you? But even in our attempt to simplify the volumes of information about Health Savings Accounts, we realize that this is a complicated decision. So, we are bringing you Health Savings Accounts Part Two: Back to Basics. We hope that this will further explain Health Savings Accounts and why they may be a good choice for you at this point in your health insurance journey.
You can’t know what you don’t take the time to learn and understand. Many people overpay for medical expenses because they do not have a knowledgeable advisor they can trust to help them understand how easy an HSA can be to open and manage. Mike Dietz, owner of MIB Health Insurance says, “I do not know of an easier way to save taxes for expenses that have already been incurred for those who have HSA-eligible health insurance plans.”
There is wisdom in the process of getting back to basics and simplifying things– even something as complicated as an HSA. Sometimes the simplest way to explain a complex issue is through stories. So, meet a few of our clients who have learned about the benefits of opening an HSA and how it helped them find peace of mind.*
Joe and Mary’s Story
Joe and Mary were eligible for an HSA through their existing insurance plan but had never used it since they didn’t really understand what it was. They were nearing retirement and wanted to make sure they were managing their money to maximize their financial security in retirement. They came to MIB for help in understanding if an HSA was the best choice for them. After reviewing their plan and financial situation, we were able to help them enroll in an HSA. We recommended they make the maximum contribution allowed because they will never have to pay taxes on this savings account. Unlike a Roth IRA/401k account where you pay taxes up front, or a traditional IRA/401k where you pay taxes when you take the money out, an HSA is an account where Joe and Mary will never pay taxes. This will help them manage their taxable income after retirement by taking money out of their HSA. There are limits on annual contributions to HSA’s but because Joe and Mary are both over 55, they can make an additional $1,000. contribution per year. When Joe and Mary turn 65 and are eligible for Medicare, they will not be able to put any more money into their HSA. Some people who still have a group health plan can continue to make contributions but there are specific limitations. Joe and Mary ended up with a very nice tax-free savings account they can use for medical, dental, vision, or other qualified expenses as they head into retirement. Joe and Mary were able to access savings from their HSA to pay for their Medicare Part B premiums which is $164.90 monthly for each of them in 2023.
Adam is a healthy, divorced man in his late forties. He knew about his HSA eligibility but was concerned about putting a large amount of money into a savings account he could not use for anything but health expenses. He needed money for things like home improvements and his kid’s education and he could not understand the advantage. We discussed the list of qualified medical expenses that HSA funds can be used for. Adam can use the HSA funds for other lifestyle needs. He will just need to pay taxes at his current rate if he withdraws funds from his HSA for unqualified expenses. We showed him the benefit to start paying into the HSA now even though the benefit may be deferred.
Even if Adam ends up saving thousands of dollars in his HSA and remains healthy, he can always use his HSA funds for Medicare Part B premiums in the future. In 2023 Medicare Part B cost $164.90 per month at the lowest income level. That is an expense of almost $2,000. Even though Adam is single, for a couple that would be $4,000 and if you figure you might need a Medicare supplement for ten years, that could be $40,000 you could use from an HSA tax-free. Adam clearly saw that saving money in his HSA would offer huge tax savings in the long run. Look at the document we shared with Adam to help him understand some of the specific details about owning and managing his HSA.
Mindy is a single woman with an HSA-eligible health insurance plan. Her HR department did a good job of explaining how the HSA works and her financial advisor told her it would be a good long-term tax shelter for retirement savings. She was not completely comfortable opening and managing the HSA herself. Mindy had the option to open her HSA at a credit union, or bank since her employer did not require a specific account at a specific financial institution. She chose a local bank where she already had accounts. She received a debit card to withdraw funds as needed. MIB helped her come up with an easy process to manage her HSA.
She needed a financial institution to hold her HSA. There are many good options out there. We showed her an example of a fund from Associated Bank that realized up to a 36% return on investment last year. Learn more about Associated Bank HSA plans here.**
Mindy used the funds from her HSA with her debit card to pay healthcare providers, pharmacies, and other eligible medical expenses like her contact lenses and a weight loss program. She had to pay for her chiropractic care from her personal checking account, knowing she could reimburse herself for those eligible expenses through her HSA.
She kept all her qualified HSA expenses in two folders making it easy to identify which bills were paid with the HSA debit card and which she needed to reimburse herself for. There is no time limit on when she can reimburse herself and she took advantage of that benefit by letting her HSA grow tax-free for five years and used the interest she earned to reimburse her for the expenses she had already paid.
Sarah is a widow. Her husband Randy left an HSA for her. The money was transferred to her tax-free. Her husband did not start the HSA with very much money. In the early years of their marriage, they lived paycheck to paycheck. However, MIB had advised him to open the account with a minimum balance of $25. and put in an additional $25 each year. Randy kept track of all their medical expenses. One year, they had eligible medical expenses of $3,000. At the end of the year, their accountant asked if they made any contributions to the HSA. Randy had only made the minimum $25 investment. Right before April 15th, Mike put $3,000 in his HSA and then took the money right back out again to reimburse himself for medical bills they had already paid. Mike used this strategy to take a $3,025 HSA deduction on his taxes saving them about $750. Having an HSA in place allowed them to take money out of the account and put it back in as they needed it over the years. The tax savings really added up and when Randy died, Sarah had a nice investment account to take care of her.
We hope this additional information about Health Savings Accounts helps clarify the process and does not confuse you more! The complex nature of Health Savings Accounts can be very difficult to understand. Hopefully, this article helps you at the very least formulate some new questions to ask. The health insurance professionals at MIB Health Insurance have been working with Health Savings Accounts for decades and are experts at determining if a Health Savings Plan will benefit you at this point in your health insurance journey.
MIB Health Insurance is a family-owned health insurance brokerage with a team of caring health insurance professionals in the Fox Cities who want to understand your unique health insurance story. Together you can find the right health insurance solutions for you and your family. The Health Insurance experts at MIB are committed to providing peace of mind to help you understand your health insurance choices. For more information, please refer to the MIB Health Insurance Blog Post from June 1, 2023, titled, Health Savings Accounts: Are They Right for You, or call an MIB Health Insurance expert at 920-731-2100 to schedule a free consultation to see if a Health Savings Account id the best choice for you and your family.
* The names in these stories have been changed to honor the confidentiality of our clients.
** No commissions, payments, or compensation were given to MIB Health Insurance in exchange for featuring this information.