Benefits of a Health Savings Account (HSA)

You may be familiar with the term Health and Savings Account (HSA) on your employer’s list of benefits or tucked away on your list of bank services. . It can be an easy term to overlook without much of a second thought. However, an HSA can be one of the best places you can put your money for both the short and long term. Read on to learn more about what a Health Savings Account is and how you could benefit from opening one.

What Is an HSA?

A Health Savings Account is more or less what the name implies: a savings account dedicated to setting money aside for medical expenses. Money contributed to an HSA is untaxed and can be used for qualified medical expenses like:

• Deductibles, copays or coinsurance
• Medical expenses not covered by your health insurance
• Some medical equipment (e.g. hearing aids, wheelchairs and eyeglasses)
• Over-the-counter medication
• Menstrual products
• Transportation expenses for medical care (documentation required)

HSA’s can’t be used for non-medical purposes before retirement (without incurring penalties) and there are limits to the amount you can contribute every year:

• Individual coverage limit (2024) - $4,150
• Family coverage limit (2024) - $8,300

However, The funds you contribute to your HSA will roll over from year to year and accrue tax-free interest, making them a viable long-term investment as well as a great resource for covering medical expenses.

What Are the Benefits of a Health Savings Account?

Opening a Health Savings Account doesn’t just mean you’ll have money set aside for medical expenses, it can be a useful financial tool for reducing your taxes, investing in your future and much more. Plus, they are easy to use and customize to your particular circumstances.

Tax advantages

Because the money you contribute to a Health Savings Account is not taxed, you can effectively lower your taxable income by investing money in an HSA. Whether your employer sends the money to your HSA pre-tax or if you report the investments after the fact with IRS Form 1040, the income you will be taxed on will be less than what you made.

For example: an individual in the 15% tax bracket who invests the maximum amount of $4,150 in 2024 will save $622.50 in taxes for the year. The amount saved will shift depending on your tax bracket and contribution amount, but no matter what there are savings to be had by investing in an HSA.

Personal ownership

Your HSA is your own — even if offered through your employer. Unlike an FSA (flexible spending account), there is no expiration date or roll-over limits on the funds invested in a Health Savings Account. And if you switch jobs or insurance plans, as long as you are on a high-deductible health insurance plan, your HSA will move with you, while something like a company-owned HRA (health reimbursement arrangement) will not.

Because you are the owner of your Health Savings Account, you don’t have to use the plan your employer recommends. Take the time to compare your options to find the right plan for you — like an HSA from DCU that offers competitive dividends, no monthly maintenance, no minimum balance to open several other conveniences.

Invest for the future

If you choose, you can use your HSA balance to invest in things like mutual funds, stocks, or bonds. Your invested funds will grow tax-free, increasing your earning potential. This option is particularly beneficial when you already have enough money in your Health Savings Account to reasonably cover a year or two of medical expenses.

Save for retirement

Once you turn 65, the money in your HSA can be used for non-eligible expenses without incurring a penalty. Using the funds in your Health Savings Account to pay for covered medical expenses will always be tax-free, while the money used for other expenses will simply be taxed at your current income tax rate.

Contributing money to your HSA is a great way to grow retirement investments in a tax-free environment while simultaneously ensuring you have easily available funds for medical needs, should they arise.

Expand your medical care options

A medical expense does not need to be covered by your insurance for you to be able to use the funds in your Health Savings Account. Whether you are in a situation where you need to get care outside of your network or for care just not covered by your insurance, the money invested in your HSA is still usable and tax free. 

Ease of use

While Health Savings Accounts have plenty of long-term benefits, the clearest day-to-day benefit is the ability to easily pay for medical expenses. Some HSAs even operate similarly to regular checking accounts with their own checks and/or debit cards that are simple to use on approved medical expenses. For even more flexibility, your HSA funds can also be used to pay for your spouse and/or dependents’ care.

For those contributing directly to an HSA from their paycheck, the process of adding funds couldn’t be simpler. Just choose the amount you’d like to invest and it will automatically be taken from your pay and deposited into your account before taxes are applied.

Supporting Our Members With Comprehensive HSAs

Whether you are at the beginning of your medical savings account journey or want to switch to an HSA that is both convenient and competitive, DCU is here for you. Our Health Savings Accounts offer good dividends that compound daily and are paid monthly, free digital banking and a 0.10% annual percentage yield — all with no monthly fees and no minimum balance to open. Reach out today to open your own HSA or with any questions you may have. 

Please note, membership is required to open a DCU HSA checking account. Visit our membership eligibility page for more information.

This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.