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You have a Health Savings Account (HSA), and even contribute to it regularly – but did you know that, in addition to providing security for medical expenses, an HSA can also be part of a healthy retirement strategy?

As it turns out, there’s more to HSAs than meets the eye – and Dahna Sanders, Senior Workplace Banking Representative with First Merchants Bank, is here to reveal everything these versatile savings accounts can do for you.

1. HSAs Roll Over

While an HSA does have a maximum contribution limit, did you know that you don’t have to spend the balance at year’s end?

“There’s a misunderstanding that you have to use that money each year or you lose it,” Dahna said. “That’s not true – those funds roll over.”

Instead, account holders might be thinking of a different healthcare account called a Flexible Spending Account (FSA). With an FSA, there is still an annual contribution cap, and spending is still limited to healthcare costs, but funds must be used by year’s end.

“So, at year’s end, you’ll typically see FSA account holders piling shopping carts full of rubbing alcohol, Band-Aids, Q-Tips, and contact solution to try and deplete it or they lose that money,” Dahna explained. “That requirement doesn’t exist for an HSA.”

Instead, in an HSA the funds roll over, year after year – so your account balance keeps growing, just like a regular savings account.

2. It’s A Good Retirement Strategy

While HSA funds are limited to medical expenses for most of the account’s life, that restriction is lifted when the account holder turns 65.

“At that point, it’s just a regular retirement account,” Dahna explained. “So you hear a lot of financial advisors telling people to put as much money into an HSA as they can – because it’s pre-tax, it rolls over and accrues a balance, and when you’re 65 whatever balance you have can be used for your retirement and it will be taxed in your retirement tax bracket, which is typically at a lower rate.”

As an added benefit, once you turn 55, the maximum annual contribution gets a boost. While the amount is subject to change, in 2023 account holders over the age of 55 can sock away an additional $1,000.

“So, it can pay for a retirement vacation or your mid-life crisis Corvette – whatever you want,” Dahna added with a laugh.

3. It Covers Dependents

An HSA doesn’t just cover your insurance beneficiaries – it can actually be used for anyone you claim on your taxes.

“So, if I have a split home or an adult child over the age of 26, I can use the funds from my HSA to cover their medical expenses,” Dahna explained.

It’s a great way to cover expenses for children and family members who may not otherwise be included in your health insurance plan – whether that’s a disabled adult, a child living with another parent, or an elderly parent.

“It’s anyone you claim as a dependent on your taxes,” Dahna said. “So it’s really quite a versatile way to take care of your family.”

4. You Can Have Multiple Cards

Unlike most savings accounts, an HSA allows you to have multiple authorized debit cards in the name of your dependents.

While you, as the account holder, must authorize each user and submit qualifying paperwork, on the whole, it makes the process of covering medical expenses simple and easy, even if you’re unable to go to an appointment with your loved one. It’s a simple, stress-free alternative to writing a check or transferring money between different parties – especially if something unexpected comes up. This way, your loved ones can get the treatment they need, when they need it.

5. Anyone Can Contribute

While most people know that you and your employer can contribute to an HSA, did you know that other people can, too?

“For example, if your parents wanted to contribute some funds to a medical expense, they’d be able to directly deposit funds in that account with your permission,” Dahna shared. “Now, those funds have obviously already been taxed, because the transfer has to come from a separate checking or savings account, but it’s a great way to take the burden off of a single person or family if a large medical expense occurs.”

However, account holders should be aware that, as with all funds, any outside contributions are still subject to the federal annual contribution limit for HSAs.

Additional Resources

We hope this handy guide has helped you learn more about your Health Savings Account and all the ways it can benefit you, now and in the future.

So, want to find out if an HSA is right for you? Our HSA Calculator can help you get started.

Did you know First Merchants offers Health Savings Accounts? Check out our HSA offerings.

Please note that this information is not intended or provided to be used as a substitute for the advice of a tax professional. You are encouraged to consult with a licensed tax advisor regarding personal financial decisions.