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Health Savings Account - Your Questions Answered 

Am I eligible to open an HSA?

Health Savings Accounts are a rapidly growing product in these times. A Health Savings Account (HSA) is like a personal savings account, but it can only be used for qualified healthcare expenses. You must be enrolled in a High-Deductible Health Plan (HDHP) that specifically makes you eligible to open an HSA. You cannot be covered under another health plan that is not a HDHP, be enrolled in Medicare, or claimed as a dependent on another individual’s tax return.


Is there a tax advantage?

HSAs have some important tax advantages making them very attractive. Contributions are deductible from your gross income on your tax return, reducing your tax bill for the year.

Who can contribute and how much?

Contributions can come from you, your employer, a relative, or anyone else who wants to add to your HSA. The IRS does, however, set limits. For 2023, the limit for those that are covered under an eligible HDHP from 1-1-2023 to 12-31-2023 is $3,850 for individuals and $7,750 for families, plus an additional $1,000 “catch-up” contribution for anyone age 55 or older by the end of the tax year. If you are covered under the HDHP for only a portion of the year, the contribution limits are prorated.

What can the funds be used for?

These funds can be withdrawn to cover co-payments and deductibles. Withdrawals from the account are not subject to federal taxes, (or in most cases, state) if you use them for qualified medical expenses. Many expenses qualify as eligible expenses as it includes a wide range of medical, dental and mental health services. They are explained in detail in IRS Publication 502, Medical and Dental Expenses. Any interest or other earnings on the money in the account is tax free if used for a qualified medical expense.
How do I make withdrawals?
At United Bank of Iowa, you may order a free debit card and, if you want checks, your first order is free. You may use either method when paying a medical invoice or making a co-payment while at the doctor’s office or pharmacy.

What if I have a balance at year end?

If you have money left in your account at the end of the year, it rolls over to the next year. The money then remains available for future qualified medical expenses even if you change health insurance plans, go to work for a different employer, or retire. It sounds simple enough; however, it requires that you also have some good recordkeeping habits. You must keep receipts to prove your withdrawals were used for qualified health expenses.

What if I use funds for something other than a medical expense?

If you withdraw funds for a non-qualified expense before you turn 65, you will owe taxes on the money plus a 20% penalty. If you are over age 65, you will owe taxes but not the penalty. The IRS does not allow these accounts to be overdrawn, so be watchful of your balance and the annual contribution limit that applies to you.

We are here to help!

Stop at any UBI location and let our experts help you. If your company offers a HDHP and you would like to offer payroll deductions, we are willing and ready to open accounts for your employees. You have the option to set up your payroll to electronically upload to their accounts. Let us know if we can help!

Benefits of an HSA

For Individuals:
An HSA is a way to pay for qualified medical expenses with pre-tax money and allow the individual to carry over balances from year-to-year.
For Employers:
An HSA increases employer’s ability to attract and retain employees. It also lowers the employer’s overall health insurance costs.