if you have a High-deductible health insurance policy, you have a ticket for a special benefit: you can contribute to it Health Savings Account, Which is a rare way to get triple tax breaks. Your contribution is pretax (or tax-deductible), the money is tax-deferred in the account and you can make it tax-free for eligible medical expenses at any time or at any time in the future.
To qualify, all you need is one HSA-Qualified Health Insurance Policy With a deduction of at least $ 1,400 if you only have self-coverage, or $ 2,800 for family coverage. If you have health insurance at work, it may be easier for your employer to sign up through a payroll deduction and contribute to an HSA, so your contribution will be to avoid both federal and Social Security taxes. Your employer can also add some money to your account. According to the Kaiser Family Foundation’s 2020 Employer Health Benefits Survey, employers contribute an average of $ 550 for people with single health coverage and $ 1,080 for family coverage. Employers typically contribute the same amount for all those who sign up, rather than matching contributions.
But if your employer does not offer HSA, or if you Buy Your Own Health Insurance, You need to find an HSA provider yourself. Many banks, credit unions, brokerage firms, HSA-specific companies and other financial institutions provide accounts. There are now more than 500 HSA providers, says Leo Acheson, director of multi-asset ratings, global manager research for Morningstar Research Services, which has completed an annual study of HSA providers. Many of the providers are small banks or credit unions, and many big-name brokerage firms do not sell HSAs directly to individuals. The market is dominated by four providers, with more than half the market share in mid-2020: Optum, HealthEquity, HSA Bank and Fidelity.
To choose so many HSA providers, it is important to shop around because fees, investment options, and regulations can vary greatly. But some HSA providers have more transparency than others, and comparing plans can be complicated. “Choosing an HSA is challenging given the young, opaque and often changing nature of the industry,” Echsen says. “Some HSA providers share the information you’re looking for, but others make it very difficult to know the investment and maintenance fees before signing up.” Morningstar report Evaluates and ranks 11 of the largest HSA providers for individuals. You can find basic information about program features, fees and user ratings for hundreds of HSA providers. HSAsearch.com, Which includes many small banks and credit unions as well as large firms.
How to choose HSA
Before you choose an HSA provider, consider how you will use the money in the account. Do you plan to spend it on current medical expenses or invest for the future? Morningstar analysis found that HSA providers that are best for spenders are usually different from providers that are best for investors (except for Fidelity Investments, which topped both lists).
Spenders Withdraw money from your HSAs because they need it for current medical expenses, so they are interested in accounts that avoid maintenance fees and do not hold very high additional fees, and which offer reasonable interest rates on deposits and FDIC insurance Offer. Some of these HSAs may also have a debit card that makes it easier to spend money at a drugstore or doctor’s office.
The Morningstar study selected Fidelity and Lively as the best HSAs for spenders, with HealthEquity and HSA authorities also doing well for spenders. Neither of those providers charge a maintenance fee.
“For spenders, maintenance fees are excessive consideration,” especially as interest rates are so low everywhere and especially now there isn’t a huge difference, says Acheson. They received a large limit in maintenance fees based on the balance in the account. For those with a balance of $ 500 or less, fees ranged from $ 0 to $ 42 per year. With an average account balance of about $ 1,000, fees ranged from $ 0 to $ 36.
There are also steps that can help you reduce the fees of some HSA providers. “You pay people a reasonable amount of $ 15 to $ 20 for paper statements,” says Acheson. “You can easily opt out and get an electronic statement.”
Investors Keep increasing the money in the account and use other cash for current medical bills. The money may be tax-deferred for years and then tax-free for future medical expenses. An HSA can be a great way to create tax-streamlined savings for health care costs in retirement: After you turn 65, you can pay the premiums for Medicare Part B, Part D, and Medicare Advantage HSAs can use tax-free funds for other out-of-pocket medical expenses schemes.
For these people, Investment options And fees make a lot of difference. Most HSAs allow you to invest in multiple menus mutual funds, And some offer brokerage options. Acheson says fund options have improved over the years. “When we first started evaluating HSAs in 2017, many of them had holes in their investment lineups and some were not core offerings,” he says. “But since then, every single one of them has included well-rounded lineups with all asset classes.” Most also provide low cost index funds and actively managed funds.
Some HSA providers only charge additional fees to be able to invest in addition to the underlying fund charge. Acheson states that account fees can vary from $ 0 to 0.50%.
Another big difference: Some HSA providers (four out of 11) let you invest all the money in your HSA, but the rest require you to keep some money in a checking account, with the amount ranging from $ 500 to $ 2,000. . “If you have to keep $ 2,000 in a checking account before investing, it can be a significant opportunity cost,” he says. “The investment limit is almost like an indirect charge.”
The Morningstar study selected loyalty as the top HSA for investors. Bank of America, HSA Authority and HealthEquity also performed well for investors.
How to switch hsa providers
If you already have an HSA and find that fees or investment options are better elsewhere, you can transfer money from one HSA provider to another tax-free, in the same way as you transfer an IRA. .
“The process of transferring an HSA from one provider to another is called a transfer of assets, also known as trustee-to-trustee transfer or direct transfer” Rita, vice president of retail health savings accounts for Fidel Investment Asaf says. . “With this type of transfer, your current HSA provider transfers assets directly to your new provider without being associated with the money movement. It will not appear as tax at the end of the year, and does not count towards its annual contribution limits. towards. ”
You can either transfer the entire balance or do a partial transfer. There is no limit to the number of direct transfers you can make, but some providers charge a fee for making transfers or fees if your balance falls below a certain level. You have no limit to the number of HSAs, but your total contribution cannot exceed the annual limit, even if you have multiple accounts.
To initiate a transfer, you will need to open an account at the new HSA provider and then you can usually request a transfer of assets through a paper form or an online process. This helps Asaf say get the current details from his current provider to help answer any questions. The specific process may vary by firm.
Another option would be to roll money from one provider to another, rather than making a direct transfer. In that case, a check is sent directly to you, and you must submit it to another HSA within 60 days or tax penalties may apply, Asaf says. You are only allowed to do that kind of rollover once in a 12-month period, and the rollover is reportable on the 1099 tax form. (Direct transfer of property, on the other hand, has not been reported)
If you have an HSA through your employer, but find that its fees and investment options are not very good, you may want to have two HSA accounts. “If you find an HSA provider with lower fees and better investment options than your employer’s option, it might be good to consider accepting pretax payroll contributions to your employer HSA, then periodically pay your balances. Can transfer part of the retail HSA to another provider. ” “Asaf says. “You’ll get the benefit of avoiding FICA (Social Security and Medicare) taxes on your contributions made through payroll deductions and potentially reduced fees and savings on better investment options.”
How to make the most of your HSA for 2020 and 2021
It is not too late to open the HSA and contribute to the account for this year – in fact, you have until April 15, 2021, to make tax-deductible contributions for 2020. If you have an HSA-eligible health insurance policy by 2020, then you can contribute up to $ 3,550 if you have self-only coverage, or up to $ 7,100 if you have family coverage (plus if you are 55 or over Additional $ 1,000 if older). If you only had a qualified policy for part of the year, then the number of your contributions can be predetermined based on the months of coverage you qualify for.
Keep it too Benefits of an HSA Keep your health insurance plan for 2021 in mind. You will be able to contribute up to $ 3,600 to the HSA for 2021 if you have your own coverage or $ 7,200 for family coverage ($ 1,000 if you are 55 or older in 2021).
You can withdraw your health insurance tax-free from the HSA at any time to pay the deductible, your out-of-pocket costs for medications and other qualified medical bills, dental and vision expenses that are covered by your insurance Not done, and a portion of the long-term care insurance premium depending on your age. After age 65, you can use the funds tax-free to pay premiums for Medicare Part B, Part D and Medicare Advantage plans.
Despite the tax benefit of increasing HSA money in the account for the long-term, Morningstar found that about 6% of account holders invest their HSA dollars. But those account holders make up 27% of the total assets. “It’s ideal to invest because you reap the benefits of HSAs with tax-free growth, but the reality is that a lot of people don’t have the means to do so,” says Acheson.