Common Questions about Heath Savings Accounts (HSAs)

Medical costs can be overwhelming, but if you have a qualified High Deductible Health Plan (HDHP), setting up a Health Savings Accounts (HSA) may be a great way to offset that financial uncertainty. HSAs can help you pay for eligible medical expenses while providing many financial benefits.

Considering setting one up, or have questions regarding your existing account? Keep reading to get answers to common HSA questions.

Is the money “use or lose”?

Money deposited into your HSA will be there whenever you need it. Unused funds will roll over to the next year, so you won’t lose your contributions.

Does the money earn interest?

Yes! The more you save, the more you can earn. Not only are contributions to the fund tax-free, but the money put into the savings account accrues tax-free interest as well. Review rates and fees.

Can I invest my HSA funds?

Yes! HSAs provide an opportunity to invest in mutual funds and help you save for retirement . Once you have a balance of $2,500 in your HSA, you can enroll in an investment account. Did you know American Fidelity recently launched an enhanced experience for managing HSA investments? Click here to learn more about investing your HSA funds.

Do I need to keep my receipts?

Yes, you are responsible in case of questions or audit by the Internal Revenue Service (IRS) to prove distributions for eligible medical expenses. Because money taken out of your HSA tax free may only go towards eligible medical expenses, it’s best to keep documentation in case of potential audit. While you will not need to submit receipts with your income tax returns, you should hold on to them!

If I leave my current employer, will I lose my HSA too?

Where you go, your HSA may follow. No matter where life takes you, you will be able to contribute to and withdraw your HSA savings.

HSAs cover “medical expenses,” but what really falls into that category?

The IRS publishes guidance about what is and what is not an eligible medical expense. Typically, eligible medical expenses include vision, dental, medical, and prescription expenses. Within these categories lie many eligible medical expenses, though they are always subject to change. Check out this list of eligible HSA expenses to learn more!

Am I the only one who can contribute to my HSA account?

No! Anyone can contribute to your HSA.

Are there limits on how much I can contribute annually?

Yes, every year the IRS sets limits on HSA contributions. While there is no minimum required deposit amount, there is a maximum.
The limits for 2020 are as follows:
- $3,550 for self-only plans.
- $7,100 for family plans.
- For those individuals aged 55 or older, an extra $1,000 “catch-up” contribution amount is permitted.
The limits for 2021 are as follows:
- $3,600 for self-only plans.
- $7,200 for family plans.
- For those individuals aged 55 or older, an extra $1,000 “catch-up” contribution amount is permitted.

Does having a high deductible health plan (HDHP) ensure that I am eligible for an HSA?

Having an HDHP is one of the requirements to start an HSA, but it does not guarantee your eligibility. For instance, having an HDHP but being enrolled in Medicare or being listed as a dependent on another person’s tax returns could result in your HSA eligibility being denied.

Who can I spend my HSA funds on?

Your HSA funds can be spent tax-free on eligible medical expenses for you, your spouse, your children, or any other individual listed as a dependent on your tax return.
- Read more about spousal HSA regulations.
- Read more about dependent HSA regulations.

What are the main differences between an FSA and an HSA?

The most notable difference between a Flexible Spending Account (FSA) and a Health Savings Account (HSA) is what happens to funds at the end of the plan year. For FSAs, those funds may or may not roll over (employers may allow employees to transfer up to $550 into the next plan year). HSA funds, however, will always roll over into the next year.

Another key difference is that FSAs are owned by an employer and the HSAs are owned by an individual. This means HSAs are portable and FSAs are not. If you decided to leave your job, an HSA would follow you, but an FSA would not.

Check out other significant differences between FSAs and HSAs.

What happens if I use my HSA on non-eligible expenses?

If you use funds from your HSA for non-eligible expenses, you must pay income tax on the amount of distribution, along with a 20% penalty charge. Individuals aged 65 or above, however, may use their HSA funds on non-eligible expenses without facing the 20% penalty fee.

Want to explore other popular reimbursement options? Check out these links below.

Information on Healthcare Flexible Savings Accounts (HCFSA)
Information on Health Reimbursement Arrangements (HRA)
Information on the differences between FSAs, HSAs, and HRAs