Did you know that you can pay for your medical expenses with pre-tax money, earn interest on retirement savings without tax penalty, and build up a no-risk savings plan that assures you have enough money on hand to cover health care expenses? Sound too good to be true? This triple advantage of contributions, investment earnings, and tax-exempt distributions does exist. It is called a Health Savings Account (HSA). While an HSA seems like the perfect solution to rising health insurance costs, tax penalties, and retirement solutions, an HSA may or may not be the best solution for you and your family. Let’s take a look at HSA benefits and liabilities to see if pursuing an HSA with your health insurance professional is a good next step for building peace of mind on your health insurance journey.


What is a Health Savings Account?

A Health Savings Account (HSA) is a personal savings account individuals can set up to pay specified health care costs. An HSA allows you to put money away and withdraw it tax-free, as long as you use it for qualified medical expenses. HSAs are transferable to a beneficiary and mobile if you switch employers.

Mike Dietz, owner of MIB Health Insurance says, “An HSA is not insurance.  It is a tax savings account similar in function to a traditional IRA and a Roth IRA combined.  Hard to believe but it has the benefits of both IRA accounts.  You do not pay taxes on the money you pay into an HSA and if you use HSA funds for qualified expenses, it is also tax-free.  There is no better way to avoid taxes than with a health savings account.”


Pros for an HSA

    • Reduces taxable income by deducting HSA contributions
    • Rolls over from year to year
    • Can be used as a retirement savings tool
    • Earns tax-free interest if you don’t use the money
    • Save pretax money for medical expenses
    • Distributions for medical expenses are not taxed
    • They are portable and move with you if you leave your job
    • Can designate a beneficiary to inherit the HSA

Cons for an HSA

    • Must have a high deductible healthcare plan to qualify
    • Cannot use distributions to pay health insurance premiums unless unemployed
    • Cannot use distributions to pay health insurance premiums
    • Once you enroll in Medicare you can no longer contribute to your HSA
    • The cost of HDHP plans are more than other plans on the marketplace because of the restriction on the maximum out of pocket annually with HSA qualified plans.

HSA Contributions and Tax Savings

Even though some investors use their HSA as a tax-free retirement account, the majority of HSA holders spend out of it at an equal rate to contributions. The average amount of HSA distributions is $1700.00. The main downside of an HSA is that you must have a high-deductible health insurance plan to qualify. A health insurance deductible is the amount of money you must pay out of pocket each year before your insurance plan benefits begin. So how can you determine if an HSA is right for you and your family?

The maximum annual contribution to your HSA for 2023 is $3,850 for individuals and $7,750 for families. This includes any contributions made by you directly or by your employer on your behalf. If you are 55 or older, you can make an additional $1,000 annual contribution until the date you start Medicare. For an individual who funds their HSA with an annual individual maximum of $3,850, the tax savings would typically be between $700 and $1,300 annually. A family could save more than $2,000 per year on income taxes. Federal tax savings rates range from 10-37%. Wisconsin State income taxes range from 3.54-7.65% and Social Security taxes are 15.3% with 7.65% from employers and employees.

Navigating Medicare

What are eligible distributions from my HSA?

While you can’t use your HSA to pay for health insurance plan premiums unless unemployed, there is a long list of eligible uses which include:

    • COBRA insurance if you lose your job
    • Long-term care insurance
    • Medicare Parts B, C, and D
    • Health Insurance deductibles and copays
    • Medical and dental bills
    • Prescriptions
    • Eye exams and eyeglasses, or contacts

Is your health insurance plan eligible for an HSA?

If you can find a health insurance plan that is eligible for an HSA, it may be a good choice for you. But only 5% of health insurance plans listed on the federal exchange or marketplace are eligible for HSAs. The IRS defines eligible plans as High deductible Health Plans (HDHP). An HDHP has a plan deductible higher than the IRS requirement of $1500.00 for an individual or $3000.00 for a family in 2023. Your health insurance plan must also have an out-of-pocket maximum of $8,050. per individual or $16,100. for your family. The IRS adds another limitation that the plan can provide no coverage (copays) other than preventative care until the deductible is satisfied.

Meet Jen and David-perfect candidates for an HSA.

The amount of tax savings from your HSA is based on your federal income tax rate, your high-deductible health insurance plan, and how you fund your HSA. Savings will vary from family to family. Let’s meet Jen and David to understand one easy-to-follow best case HSA scenario.

David is a 55-year-old self-employed business owner in a higher 27% tax bracket. David was advised to use an HSA to save as much as 50% in taxes. He deposited his max HSA family contribution of $7,750 per year into his Health Savings Plan for ten years. David saved $20,925 in taxes alone in that time. He continues to make his HSA contributions according to IRS rules before his annual tax filing. David was also advised to manage his HSA. While he did not take any money out of the account last year, it did roll over. He keeps a journal of medical expenses and can withdraw funds to cover any of those eligible costs in the future completely tax-free. On the savings side over ten years, David has saved, $77,500 plus interest earned. He can take that money out tax-free to cover medical expenses as needed. An HSA for David and Jen was absolutely the right choice for peace of mind on their health insurance journey.

Understanding, if a Health Savings Plan is right for you, can be complicated. The health insurance professionals at MIB Health Insurance are knowledgeable about the ins and outs of HSA benefits and liabilities. Let’s sit down and talk about HSAs and see if it is the right choice for you.


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 healthcare story. Together you can find the right Medicare solutions for you and your family. Your health insurance partners at MIB are committed to helping you understand your Medicare options saving you time and money. Call a MIB Health Insurance partner at 920-731-2100 to see what Medicare peace of mind may look like for you.