July 3, 2019

Health Savings Accounts allow you to set aside money on a pre-tax basis for qualified medical, dental and vision expenses (such as copayments, deductibles and coinsurance). Employees enrolled in an HSA through work will often be provided an annual employer contribution as well. 

Below are answers to some frequently asked questions about Health Savings Accounts.
Health Savings Account Icon Block


How do I qualify to enroll in  an HSA? 
  • To open an HSA, the IRS requires you to have a qualified High Deductible Health Plan, as well as meet other requirements.  We recommend that you consult your financial planner and/or tax advisor.
How do I access my HSA funds?
  • Accessing your funds is simple. Once you sign up for an HSA, you will receive a debit card to pay for qualified medical expenses completely tax-free.  You may also save and submit receipts.
How much can I contribute to my HSA each year?
  • Those with individual coverage may contribute up to $3,500/year. If you have family coverage, your limit grows to $7,000/year. Those 55 and older are eligible to add an extra $1,000/year catch-up contribution. Withdrawals for non-qualified expenses before age 65 are taxed as regular income and receive an additional 20% tax penalty. After 65, they are taxed as regular income but with no penalty. Give careful consideration to whether their current budget accommodates the higher deductibles.
What happens when I withdraw from my HSA?
  • Withdrawals from  your account can be made tax-free as long as they are made for qualified medical expenses.   They are managed externally, so you can carry your balance with you for the rest of your life, whether or not you use the money (unlike many flexible spending accounts which require you to make withdrawals within a calendar year). 
At what age should I open an HSA?
  • It’s never too early to start contributing to an HSA. According to a Fidelity Investments press release, a 65 year-old couple retiring in 2019 can expend to spend approximately $285,000 to cover health care expenses in retirement. If you want to keep contributing to an HSA after age 65, you cannot be enrolled in any part of Medicare (even part A). You will incur a tax penalty if and when you enroll in Medicare without stopping your HSA contributions 6 or more months before. 
Are contributions to my HSA Investible? 
  • Yes! HSAs are the only investment vehicles that allow tax-free contributions, tax-free growth and tax-free withdrawals. For that reason, financial planners recommend them as a robust way to invest and save for medical expenses in retirement.  Any amount above $2,000 in your HSA can be invested into stock and bond funds similar to those available through your 401(k) or IRA. 

These facts and opinions are provided by the Cape Cod Five Trust and Asset Management Department. The information presented has been compiled from sources believed to be reliable and accurate, but we do not warrant its accuracy or completeness and will not be liable for any loss or damage caused by reliance thereon. Investments are NOT A DEPOSIT, NOT FDIC INSURED, NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY, NOT GUARANTEED BY THE FINANCIAL INSTITUTION AND MAY GO DOWN IN VALUE.

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