Changes in the health care marketplace, rising medical costs, and the tax advantages that health savings accounts (HSAs) offer make them an attractive planning tool for many individuals covered by high-deductible health plans (HDHPs).

We are thrilled to announce that EmVision Capital Advisors now offers HSAs to help you manage your healthcare savings with ease! HSAs are a fantastic way to save for medical expenses, and having one through EmVision Capital allows you to keep everything in one place, simplifying your financial planning. Whether you’re looking to save for future medical expenses or reduce your taxable income, our new HSA offering is here to help!

Read on to learn more about how HSAs work, who qualifies, and how they can benefit your overall financial strategy.

What is an HSA? 

An HSA is a tax-favored account used to pay for qualified medical expenses in conjunction with an HDHP. Unlike flexible spending accounts (FSAs), which are designed to cover current out-of-pocket medical costs, the money in HSAs never expires and can be used to pay for health care expenses now and in retirement. HSAs may be offered through your employer or purchased directly if you are eligible. They can be established at a bank, insurance company, or IRS-recognized third-party administrator.

Please note: You cannot participate in a general health FSA while also contributing to an HSA.

Generally, contributions to an HSA are tax deductible. Their earnings accumulate tax deferred, and withdrawals are tax free if used to pay for qualified expenses. If, before you turn 65, you withdraw funds from an HSA that are not used for qualified medical expenses, the withdrawal will be subject to a 20 percent penalty, in addition to income tax. After age 65, withdrawals not used for qualified medical expenses are no longer subject to the 20 percent penalty. Nonqualified withdrawals will still be taxable income, however, even after age 65.

Who is Eligible?

To establish an HSA, you must be covered by an eligible HDHP. For 2024, this is defined as a plan for which the family annual deductible minimum is at least $3,200 ($1,600 for an individual), and the annual out-of-pocket costs are limited to $16,100 for family coverage ($8,050 for an individual). For 2025, this is defined as a plan for which the annual deductible minimum is at least $3,300 for family coverage ($1,650 for an individual), and the annual out-of-pocket costs are limited to $16,600 for family coverage ($8,300 for an individual). Your healthcare benefits provider can confirm whether your plan is considered an HDHP that is eligible for an HSA. 

You are generally not eligible to contribute to an HSA if:

• You are enrolled in Medicare
• You are claimed as a dependent by another taxpayer
• You are covered by someone else's nonconsumer-directed health plan
• You are covered by a general health FSA or a health reimbursement arrangement that pays or reimburses qualified medical expenses

What Are The HSA Contribution Limits?

In 2024, the HSA contribution limits are $8,300 for a family account and $4,150 for an individual account. In 2025, the HSA contribution limits are $8,550 for a family account and $4,300 for an individual account. If you are 55 or older, you may make an additional catch-up contribution of $1,000 per tax year. You can contribute to an HSA for the current tax year any time before the tax filing date of April 15.

Contributions to a HSA may be made by you, another individual, or an employer. Employer contributions made on your behalf through a cafeteria plan are generally not income taxable to you. If you contribute directly to an HSA, the contributions are considered "above-the-line" deductions, which means you can claim them without itemizing deductions on your tax return. Your tax advisor can provide more information on the tax treatment and deductibility of HSA contributions. 

Which Medical Expenses Are Covered?

You can make tax-free withdrawals from an HSA for qualified medical expenses for you, your spouse, or other dependents. Eligible expenses include lab fees, prescription drugs, dental and vision care, as well as out-of-pocket health insurance deductible costs.

An HDHP may offer free coverage for telehealth services before the deductible is met. This temporary change to the no first dollar coverage rule is currently in effect through December 31, 2024.

You may also use distributions to pay for certain insurance coverage, including: 

• Long-term care insurance (subject to specific limits and guidelines)
• COBRA health care continuation coverage
• Health care coverage while receiving unemployment compensation under federal or state law
• Medicare and other health care coverage if you are 65 or older (Note: HSA distributions used to pay for a Medigap premium is not a qualified medical expense.)

Qualified medical expenses are detailed in IRS Publication 502. 

Can Both Spouses Contribute to an HSA?

Both spouses can contribute to an HSA if they are covered separately under eligible HDHPs. 

May I Take a Distribution from an Existing IRA and Contribute it to an HSA?

You are permitted to take a qualified HSA funding distribution from your traditional IRA or Roth IRA into an HSA once in a lifetime. This must be a trustee-to-trustee transfer. The amount is limited to your maximum HSA contribution for the year, minus any contributions you have made for the year. (Distributions are not allowed from active SEP IRAs or SIMPLE IRAs that received employer funding in the same tax or plan year.) One benefit of doing this is that there are no required minimum distributions beginning at age 70 1/2 from an HSA. Plus, withdrawals can be taken income tax free when used for qualified medical expenses.  

What Other Planning Considerations Should I Be Aware Of?

Because there are no restrictions on when you need to distribute HSA funds, you may wish to pay out-of-pocket health care costs from your current income and allow the HSA to continue to grow tax deferred, reserving those funds to cover medical care in retirement. 

HSAs offer several other advantages, including portability, which permits you to take the HSA with you should you leave your current employer. You can also name a beneficiary to inherit the HSA in the event of your death. It's important to note that your spouse can step into your role upon your death and the account will remain an HSA. If you name a nonspouse beneficiary, however, the account will no longer be considered an HSA, and the inherited amount will be treated as taxable income. 

Additional information on HSAs is available in IRS Publication 969. 

Questions? 

We're here to help! Contact us today.

Michael Embrescia is a financial advisor located at EmVision Capital Advisors, 251 W. Garfield Rd. ​Suite 155 Aurora, OH 44202. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (330) 954-3770 or at info@emvisioncapital.com.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.