If you're an HR professional or a business owner who offers a high-deductible health plan, you likely know about the benefits of adding a Health Savings Account (HSA). HSAs are tax-advantaged accounts that employees can use to pay for qualified medical expenses. But they're also a great way to help your clients and employees build up their long-term savings while also providing them with greater financial flexibility.
However, there are rules and guidelines that need to be followed to get the most out of an HSA, especially when it comes to unused funds at the end of the year. In this blog post, we'll explore what happens to unused HSA funds at the end of the year and how to help your clients and employees get the most out of their HSAs.
(Spoiler Alert–employees keep all of their unused HSA funds at the end of the year!)
How do HSAs Work?
A Health Savings Account (HSA) is a tax-advantaged savings account that can be used to pay for eligible medical expenses. An HSA is only available to individuals enrolled in a high-deductible health plan (HDHP). The triple tax advantage of HSAs refers to the fact that contributions to an HSA are tax-deductible, the funds grow tax-free and distributions for qualified medical expenses are also tax-free.
Both employees and employers can contribute to an HSA. Employees can make pre-tax contributions to their HSA through payroll deductions and employers can also contribute to their employees' HSAs.
The total amount that can be contributed to an HSA each year is determined by the IRS, and the contribution limit may be adjusted annually. For 2023, the HSA contribution limit for individuals is $3,850 and $7,750 for families.
It's important to note that HSA funds can only be used to pay for eligible medical expenses, which include things like deductibles, copayments, prescriptions and more. If HSA funds are used for non-eligible expenses, there may be tax penalties.
Now that we've covered the basics of HSAs, let's explore what happens to unused HSA money at the end of the year.
What Happens to Unused HSA Funds at Year’s End?
Unlike some other types of healthcare accounts, HSAs do not have a "use it or lose it" rule. This means that any unused funds in an HSA at the end of the year will roll over to the next year. In fact, HSA funds can continue to roll over from year to year and even from job to job since the funds are owned and managed by the employee, not the employer.
This rollover feature can be a great benefit for employees who are able to save money in their HSA. Not only can they use the funds for eligible medical expenses in the future, but they can also use the funds for HSA investments. The Clarity HSA is unique because it offers three unique investment options, which can help employees grow their HSA balances over time.
In summary, unused HSA funds do not disappear at the end of the year but rather roll over from year to year and from job to job. This feature can make HSAs a valuable tool for your clients and employees to save money on healthcare expenses and invest for their future.
How to Help Your Clients & Employees Get the Most Out of Their HSAs
As an HR professional, you have the opportunity to help your clients and employees get the most out of their HSAs. Here are some tips to consider:
- Choose an HSA with Expanded Options
When selecting an HSA, look for one that offers high-yield interest savings options and a next-generation investment experience. These options can help employees earn more on their HSA funds and grow their balances faster.
- Educate Your Clients & Employees
Help your clients and employees understand the benefits of HSAs and encourage them to make the maximum contribution each year. You can also offer resources to help manage their HSA funds and investments, such as online tools and educational materials. With the Clarity HSA, employees can manage their everyday HSA benefits and their investments from one easy-to-use platform!
- Offer a Matching Contribution Program
Consider offering a matching contribution program to incentivize employees to save more in their HSAs. This can be a great way to help employees build their HSA balances and save on healthcare costs. Not to mention, it’s an excellent incentive when trying to attract and retain top talent.
- Remind Employees to Use HSA Funds for Eligible Purchases
Finally, remind your employees to use their HSA funds for eligible medical expenses. This can help them avoid tax penalties and make the most of their HSA savings. A great tool to use is the HSA Store. It lists thousands of eligible purchases and exactly which accounts qualify for HSA reimbursement.
By following these tips, you can help your clients and employees get the most out of their unused HSA funds and maximize their healthcare savings.
Unlock the Potential of HSAs
HSAs offer a unique triple tax advantage, allowing employees to save money on healthcare expenses, earn tax-free interest and investment income and receive tax deductions on contributions. Unlike other healthcare accounts, HSAs do not have a "use it or lose it" rule, and any unused funds roll over from year to year and from job to job.
As an HR professional or business owner, you can help your clients and employees get the most out of their HSAs by choosing an HSA with expanded options, educating them about the benefits of HSAs, offering resources to manage their HSA funds and investments, and reminding them to use their HSA funds for eligible purchases.
Understanding the potential of HSAs can have a significant impact on the success of your organization and the financial well-being of your clients and employees. By leveraging the power of HSAs, you can help your clients and employees save money on healthcare expenses, grow their savings, and invest in their future.
If you're interested in learning more about how HSAs can transform your organization, contact us to explore our new HSA experience. Our team of experts can help you design an HSA program that meets your unique needs and delivers maximum value to your clients and employees.