Can’t Start a Health Savings Account (HSA) If You Have Non-HDHP Coverage

If you’re in the market for a health savings account (HSA), there’s one essential criterion you must meet: you must be enrolled in a high-deductible health plan (HDHP). Without HDHP coverage, you won’t be eligible to open an HSA.

What is an HDHP?

An HDHP is a type of health insurance plan that has a higher deductible than traditional health plans. In exchange for the higher deductible, you’ll pay lower monthly premiums.

In 2023, the minimum deductible amounts for an HDHP are:

– $1,500 for self-only coverage
– $3,000 for family coverage

HSA Eligibility

To be eligible for an HSA, you must:

– Be enrolled in an HDHP
– Not be enrolled in any other health insurance plan that provides coverage for non-preventive care (except for certain limited exceptions)
– Not be claimed as a dependent on someone else’s tax return
– Have not reached age 65

Restrictions on HSA Contributions

The amount you can contribute to an HSA each year is limited by the IRS. In 2023, the contribution limits are:

– $3,850 for self-only coverage
– $7,750 for family coverage

Why an HSA May Not Be an Option

If you have access to non-HDHP coverage through your employer or spouse’s employer, you will not be eligible for an HSA, even if you decline coverage under that plan.

Alternatives to an HSA

If you’re not eligible for an HSA, there are other ways to save for healthcare expenses.

– Health Reimbursement Arrangement (HRA): An HRA is an employer-sponsored account that allows you to use tax-free dollars to pay for qualified medical expenses. However, unlike an HSA, you must use the funds within the same year they are contributed.
– Flexible Spending Account (FSA): An FSA is a similar type of employer-sponsored account that allows you to use pre-tax dollars to pay for qualified medical expenses. Like an HRA, you must use the funds within the same year they are contributed.
– High-yield savings account: Although contributions are not tax-deductible and earnings are taxed, a high-yield savings account can be a good option for saving for healthcare expenses because of its potential to earn higher interest rates than a traditional savings account.

Conclusion

Health savings accounts (HSAs) offer a number of tax benefits and can be a great way to save for healthcare expenses. However, it’s important to understand the eligibility requirements and contribution limits before opening an HSA. If you have access to non-HDHP coverage, you will not be eligible for an HSA. In this case, you may want to consider other savings options, such as an HRA, FSA, or high-yield savings account.