A health savings account (HSA) is a tax-advantaged personal savings account that allows you to be more actively involved in your health care decisions.
Depending on you and your family's health and financial situation, you may be considering enrolling in the lower-cost, High-Deductible PPO plan. If so, opening a health savings account (HSA) can be a great way to offset those higher deductibles and build tax-free savings for future health care expenses, long-term care and insurance.
How an HSA works
You open an HSA at a financial institution of your choice.
You contribute money to the account. You generally will not pay federal income taxes on your contributions (see HSA Rules of the Road).
The account can grow tax-free—you pay no taxes on the interest or investment earnings in your HSA. You also don't pay income taxes when you withdraw the money, as long as you're using it for qualified medical expenses.
When you have a qualified medical expense—like paying toward your annual deductible—you can decide whether to reimburse yourself with money in your HSA, or pay the expense out of your own pocket and let the HSA money have more time to keep growing.
Your HSA belongs to you, and you can take it with you if you leave The Texas Annual Conference of the United Methodist Church (TAC). Also, there's no "use it or lose it" provision—any money you don't use stays in the account where it can grow tax-free.
Where to open your HSA
Your health savings account is not managed by or associated with TAC—it's a bank account that you must open on your own. Financial institutions can open your HSA for you. Check with your current bank. When choosing a bank for your HSA, be sure to compare the monthly fees and minimum balances.
Some things to remember about HSAs
To open a health savings account, you must be enrolled in the High-Deductible PPO plan.
You are in charge of your HSA funds. You decide which expenses to reimburse yourself for, and when. That makes you a more aware health care consumer. And remember, you never pay taxes on the money you withdraw, as long as it's for qualified medical expenses.
There's no time limit on using the money in your HSA; just be sure to keep legible receipts in case you're audited by the IRS.
It might help to think of your HSA like your UMPIP account or a 401(k) savings account. Because the money goes in tax-free and grows tax-free, the longer it's in there, the greater its potential for growth. If you withdraw the money to use for non-qualified expenses, you'll pay a 10% penalty as well as ordinary income taxes. After age 65, you can withdraw the money for non-medical expenses without paying a penalty, but you'll still pay income taxes.
What's a qualified expense?
Besides deductibles, copayments, coinsurance and long-term care expenses, there is a wide variety of other expenses qualified for reimbursement from your HSA. The IRS determines which expenses qualify, and the list may change from year to year. Check IRS Publication 502 and 969 for a complete, updated listing.
Please note: The HSA information provided in this section is not guaranteed to be accurate. Please check with a financial advisor before acting.