‘Tis the season for open enrollment – it begins on November 1 and runs through January 31. To help you navigate through the upcoming changes, Rivers Insurance Group is launching a Health Insurance: What’s New for 2016 blog series to keep you updated and answer your questions.
The Top 10 Facts You Need to Know About HSAs
As open enrollment approaches, an increasing number of individuals will be offered an HSA option as part of their individual health insurance plan. We’ve compiled some basic information and updates about HSAs for 2016 to help you weigh your options and choose your plan.
What is an HSA?
HSA stands for Health Savings Account. It’s a powerful incentive for taxpayers to save for future health expenses. Here are the Top 10 facts you need to know:
- Tax benefits. HSAs offer more tax benefits than the most other plans. (a) Anything you add to the account will grow without tax penalties (b) Contributions made to the account reduce a person’s taxable income (c) Withdrawals from the account used to pay for qualified expenses are tax free.
- HDHP Requirement. You must be enrolled in a High Deductible Health Plan in order to qualify for an HSA plan. High Deductible Health Plans have lower premiums and higher deductibles than traditional health plans.
- Contributions Limits. For 2016, there has been no change in individual contribution limits for HSAs. It remains at $3,350. But the contributions for families will increase by $100, to a maximum of $6,750.
- Individual Out-of-Pocket Expense. There will be a $100 increase in individual caps for out-of-pocket expenses in 2016. The new amount is $6,660.
- Family Out-of-Pocket Expense. The maximum out-of-pocket expense for families will increase by $200 in 2016, to $13,100.
- Minimum Deductibles. The minimum deductibles for the High Deductible Health Plans will remain unchanged for 2016: $1,300 for individuals; $2,600 for families.
- Non-Qualified Withdrawals. There are penalties for non-qualified withdrawals from an HSA plan. Non-qualified withdrawals by individuals under the age of 65 who are not permanently and totally disabled will be taxed as ordinary income, with an additional 20 percent penalty.
- Investment Assets. Individuals can invest within their HSA account. In 2014, those HSA accounts that had investment assets attached to them had higher balances at the end of the year – just under half had $10,000. Only a small fraction of accounts without investment assets had a high balance when the year ended.
- Know Your Options. Other retirement plans may reduce an individual’s taxable income, but contributions and original pre-tax distributions are still taxed. Roth IRA or 401(k) programs offer no tax advantages for contributions. Distributions and account growth are not taxed if the holding period requirements are met. Explore the implications of the loss of your 401(k) matching plan, and compare it to the tax benefits of using the HSA.
- Consider Your Own Needs. Each person has his or her own unique financial, health and family situation. Make a note of your priorities, and discuss with an agent if an HSA plan is best for you.
If you have further questions about HSAs or open enrollment for 2016, please contact Rivers Insurance Group for a free quote, or call us at (614) 515-5236.