An HSA is a powerful savings tool: not just for health expenses, but also for retirement.
Advantages
First of all, it’s your account. It doesn’t matter how long you stay at Waters, or where you go next. The account stays with you. And the money in it has THREE tax advantages:
It isn’t taxed going in! Your contribution to the account is taken from your paycheck, before federal taxes are calculated. That can save you between 15% and 30% in taxes.
It isn’t taxed while it earns interest in your account! Most investments are taxed every year, leaving you less to invest the year after. But the money in an HSA account isn’t taxed until you take it out. (Any money in the account earns interest. And once you contribute over a certain amount – $500, for your plan – you can choose to invest that money in Fidelity’s mutual funds.)
It isn’t taxed if you take it out to pay for medical expenses! It doesn’t matter when you take it out: in 6 days, or 60 years. As long as it’s used to pay for qualified medical expenses, you can use it tax-free.
If that weren’t enough, you can withdraw the funds when you reach retirement age and use the money in any way you want. Currently, that age is 65. (When you withdraw cash after retirement, and it isn’t for health care, the cash is taxed as regular income.)
Requirements
Not just anyone can enroll in an HSA. If you enroll in the Copay and Deductible medical plan, you are not eligible for an HSA or HRA. If you will be covered on one of the other two medical plans, which are HSA eligible, it is your responsibility to determine whether you qualify for an HSA Account, under the IRS rules. For example, in accordance with IRS regulations, to sign up for and participate in an HSA Account, you must not have access to funds in a General Purpose Health Care Flexible Spending Account (you or your spouse’s). You must be enrolled in a qualified high deductible health plan (both of Waters deductible HSA eligible medical plans are), have no other health coverage (including Medicare or Medicaid), and you cannot be claimed as a dependent on someone else’s tax return. (See the HSA regulations set by the IRS here: https://www.irs.gov/publications/p969/ar02.html#en_US_2015_publink1000204025.)
Depending on which plan you choose, you could have the option to choose the HSA or the HRA.
Even if you are eligible for an HSA, you will have the option of enrolling in an HRA (or Aetna HealthFund Account, which we will go over below) with an optional General Purpose Health Flexible Spending Account (or FSA) instead.
If you need access to those funds at the beginning of the year to help with big out-of-pocket costs that you don’t have saved up in your HSA, or you can’t go on a payment plan for—say, for example, an expensive prescription you need to purchase in January—this option is there to help you.
If you don’t need early access to those funds, or if you already have the money saved up in your current HSA, you may be better off with an HSA. HSAs let you keep your contributions year over year, and may let you take advantage of a few other benefits that an HRA-FSA combo wouldn’t.
You can find the HRA (Aetna HealthFund Account) regulations set by the IRS here: https://www.irs.gov/publications/p969/ar02.html#en_US_2015_publink1000204194.
Funds in an HSA can be withdrawn without penalty in two ways:
Tax-free, to pay for qualified medical, prescription, dental, and vision expenses. To be clear, qualified expenses is a pretty strict list. (“Needing” to go on a cruise to lower your stress won’t make the cut.)
Taxed as normal income, if withdrawn during retirement for non-health-related reasons. To see a list of qualified expenses, take a look at the HSA summary on Fidelity’s NetBenefits site at 401k.com, or go to the actual creator of the list, the IRS.gov, Publication 502.
You’ll also have to be careful of WHO you spend the funds on. You can’t use your HSA account to pay for the expenses for non-tax-eligible dependents. These may include:
Domestic partners
Tax-independent children under 26
Divorced or legally separated spouses
Your grandchild or your partner’s grandchild (unless you are the legal guardian of the grandchild)
If you withdraw the funds without following the rules above, you’ll pay income tax on the amount you withdraw, as well as a 20% penalty fee (if under 65 years of age).
Now, if you do enroll in an HSA, there are other accounts you cannot enroll in. If you have an HSA, you cannot have an HRA (Health Reimbursement Account, also known as an Aetna HealthFund Account), or a General Purpose Health FSA. You can only combine an HSA with a Limited Purpose Health FSA. Limited Purpose Health FSAs can be used for dental and vision expenses, so you don’t have to use up your HSA for those, and instead save your HSA for medical & prescription, and even save as much of your HSA as possible for later years, even for retirement. Per IRS rules, even if your spouse has their own General Purpose Health FSA, you can NOT have an HSA Account.
Depositing Funds
Here’s how money gets deposited into an HSA:
First, after you enroll in a Waters eligible High Deductible Health Plan and you elect to contribute to an HSA, go to www.401k.com to complete the opening of your new HSA account, if you don’t already have an account open. (You can do this immediately after completing enrollment.)
Waters takes it out of your paycheck, pre-tax, on your behalf (and you can change the amount you contribute at any time during the year).
You deposit money into your account, post-tax. You can then claim it as non-taxable when you complete your taxes.
Waters will deposit $200 for employees enrolled with Employee Only tier for medical, or $400 for all other tiers (prorated for new hires during the year). If you participate in the Waters Wellness Now program with Virgin Pulse you can earn additional company incentive contributions into your account (see the Wellness section for more).
Contribution Limits
There are yearly limits to how much you and Waters may contribute to the account each year, per the IRS.
This year, the HSA limits are:
And if you happen to be 55 or older in this year, you can deposit an extra $1,000 in catch-up contributions. (Even if you turn 55 on December 31st, you can still add that extra $1,000 during the year.)
How to Pay Qualified Expenses Using Your Health Savings Account
There are three ways:
You use your Fidelity HSA Account Debit Card.
You pay the expenses yourself and then reimburse yourself by linking your personal bank account with your Fidelity account and electronically transferring the exact amount for reimbursement.
You send money from your HSA directly to the provider, using the claim sync-up feature called “Track and Pay.” This feature is offered to you by Fidelity, on 401k.com, after you complete your HSA account setup on that web site. (You’ll set up the account after you first elect to contribute money to an HSA account on WatersBenefitsNow.com.)
Just remember, if you use the debit card or reimburse yourself, it’s your responsibility to ensure that you are only using your HSA Account to pay for IRS qualified eligible expenses – otherwise you have a tax violation that you will have to address if you are audited by the IRS.
A note about Plan Administration…
You will be able to see and manage your HSA Account with the same phone number and web site you’ll use for your Waters 401(k), or any Waters Equity Plans.
Three advantages to having your HSA with Fidelity:
A clear and simple tool to pay your eligible health expenses, straight from your HSA Account (on NetBenefits 401k.com)
Easy access to all of Fidelity’s mutual funds, to invest your HSA account money (once your account balance is $500 or more)
Enhanced consultative help and assistance to manage your HSA, with Fidelity certified representatives–as you have come to experience with Fidelity’s 401(k) service.
As an HSA member, you’ll be able to access your HSA by going directly to NetBenefits at 401k.com, which will also include your HSA Account, in addition to your Waters 401(k) Account, and any additional Fidelity accounts you might have.