Understand your HSA and FSA benefits

My name is Dawn Proctor, and it's my pleasure to speak with you all today about Health savings accounts you have at your disposal. I'll start by covering basic information about how these accounts work, and I'll also be sure to share the tools and resources that you have at your disposal to help you manage your account. For today's session, we'll start with an overview of what a Health savings account or an HSA is and how it works.

From there, we'll explain the triple tax advantages that makes an HSA a valuable tool. We'll also walk through how contributions work. We'll review some investment basics and also cover what types of expenses are considered HSA eligible. Finally, we'll show you how Optum’s Tools can help you to manage, spend, and save your HSA with confidence. Please note this session is for educational purposes only, and it is not intended as tax or legal advice.

So we would ask you to consult a tax or legal professional for advice about your individual situation. Now that we've outlined what we'll cover today, let's start by looking at why open enrollment is such an important time to think about an HSA. Open enrollment is your once a year opportunity to choose a health plan that meets your needs and allows you to save income tax free.

And often, HSA helps you to save on health care costs with an easy to use payment card and a mobile app to manage your account. An HSA helps you to save for qualified medical expenses, save on taxes, and even plan for future health care needs like savings for retirement all in one account. Open enrollment is also the time to decide whether to enroll in an HSA for the first time, or to adjust how much you want to contribute for the year.

For those of you who may have had an FSA in the past, I want to call out a few differences with this HSA program. HSA funds will stay with you. HSA is like a bank account, and the money remains yours until you spend it down on qualified medical expenses. An FSA is generally designed to be more of a spending vehicle, and your employer may allow a certain amount to carry over to the next plan year.

But an FSA is not a bank account in the same way that an HSA is. In most cases, if you were to leave your employer, you will not retain any unused FSA funds. To better understand how an HSA can help you. Let's start with the basics. A Health savings account helps you to save smarter through all stages of life.

You can set up payroll deductions through your employer, and use income tax free dollars to pay for qualified medical, dental, and vision expenses. Your HSA dollars are yours to keep. Balances carry over from year to year to new jobs, and even into retirement. In terms of eligibility, you are eligible to open and continue funding an HSA. If you are not covered by any other health plan that is not a high deductible health plan.

HSA qualified you are not enrolled in Medicare or Tricare or Tricare for life. You haven't received Veterans Affairs benefits within the past three months, except for preventive care, and you couldn't be claimed as a dependent on someone else's tax return. You also can't have an active general purpose health care FSA or an intra while you are funding an HSA.

It's also important to know that an HSA is not, what you would consider and use it or lose it account. Any unused funds roll over year to year and stay with you even if you change jobs, as mentioned. Even if you're healthy today, an HSA can still help you to save for routine, unexpected, or future health care expenses.

And once your account is active, the real advantages of an HSA begin to show HSAs offer a unique triple tax advantage, which means you save on taxes in three different ways. First, contributions made through payroll are generally made on a pretax basis. Contributions made outside of payroll may still offer a tax advantage when you file your return. Depending on your individual tax situation.

Second, once the money is in your account, it can grow tax free through interest and when eligible investments. Third, when you use those funds for qualified medical expenses, withdrawals are also income tax free at the federal level. Together, these three benefits help your money go further compared to a traditional savings account. Let's look here at the example to see how this can add up over time.

Lee Jae she's 30 years old and considers herself fairly healthy. When Jae started her new job, she decided to open an HSA and contribute $200 per month. Each year, she uses about $500 from her HSA for routine health care expenses, and after her first year, even after paying those costs, Jae has a remaining balance of $1,900. By consistently contributing and taking advantage of the HSAs tax benefits.

That balance will grow over time by the time Jae reaches age 65. She could have about $66,500 saved to help cover her future health care costs. This example is just one to show you how using an HSA, even when you still spend some of the money, can support both today's expenses and long term savings. Understanding the tax benefits of an HSA is important.

So let's look at the practical side of using your HSA. Once you've enrolled in an HSA, the next step is deciding how much to contribute and how you want to use your account. You decide how much to contribute to your HSA up to IRS limits. Contributions can come from payroll deductions or direct deposits. You can use your HSA funds for eligible expenses such as doctor's visits, planned procedures, surgeries, prescriptions, and dental or vision care.

Each year, the IRS sets contribution limits, and those limits include both your contributions as well as your employer's contributions. Unlike some other benefits, you can usually adjust your HSA contribution amount throughout the year up to the IRS annual limit. Beyond covering today's expenses, and HSA can also help you plan for the future. Certain plans may have additional investing options.

I would encourage you to check with your plan documents for details, and to see the threshold that you need to meet to invest. Once you reach the investment threshold, there are options available for every type of investor. Options are professionally managed funds for investors who want professional advice and portfolio management, or even mutual funds. For investors who prefer a straightforward yet customizable approach.

To help bring this to life. The example on the right assumes a $3,000 annual contribution and reinvestments of any earnings over time. What this shows is that starting earlier, even with the same contribution amount, gives your HSA more time for potential growth. The numbers will vary, but the takeaway is that time and consistency can make a meaningful difference.

Let's now shift from growing your HSA to how you access those funds when you need them. When we talk about distributions, we're referring to how you use or withdraw money from your HSA. The best way to use your HSA is for qualified medical expenses, because those distributions are tax free at any age. It's important to know that you can only use your HSA for expenses that were incurred after your HSA was established.

That's an IRS rule. I'm also excited to share that you can use HSA funds for your own qualified medical expenses, as well as expenses for your eligible spouse and tax dependents, even if those individuals are covered under a completely different health plan. If you take money out of your HSA for non-qualified expenses before age 65, you could end up paying income taxes on the funds, plus a 20% penalty.

But after age 65, you can still take money out for something that's a non-qualified expense. You would simply pay income taxes without that penalty. The best thing to keep in mind, certainly, is that no matter your age, when HSA funds are used for qualified expenses, they're generally not subject to federal income taxes or penalties.

You don't need to submit receipts to Optum when you use your HSA, but I will say it is really important to keep them on hand in case the IRS ever conducts an audit. Understanding distributions also encompasses knowing the types of expenses your HSA can cover. Let's look at what qualified expenses include. Your HSA can be used to pay for a wide range of qualified expenses.

These include things like doctor's visits, prescriptions, dental and vision care, and many other everyday health care needs. You can use your HSA payment card at the point of care. You can pay expenses online or reimburse yourself for eligible costs you may have paid for out of pocket. You can also shop on Optum now for HSA eligible products that would be delivered right to your door.

Because the list of qualified expenses is extensive. It's helpful to check the qualified expense tool on Optum's website. If you're ever unsure. One important thing to know is that your HSA can be used not only for your own eligible expenses, but also for your eligible spouse, tax dependent children, and other tax dependents. I know I mentioned that already, but I think it's a really interesting point to take home.

If you are new to an HSA. Filing taxes isn't very scary or difficult. It's just one inch your tax form and we adopt and will provide you with everything you need to be able to file your taxes. Your W-2 from your employer also includes some key information. If you have any questions, we do advise you to check with your tax advisor.

But again, we have a lot of tax related resources online to guide you through this process. So let's briefly talk about how your HSA shows up on your tax forms. HSA activity reported on IRS form 8889 using information from your W-2 and Optum’s portal. HSA contributions are tax advantaged, as we've talked about, and form 8889 helps you to report those contributions for the year.

Optum also provides form 5498 as a which shows your total contributions. This form is available online and in the mobile app each year. You should keep it for your records, but you don't necessarily need to file it with your tax return. When you use HSA funds for qualified expenses, withdrawals are tax free. As we've talked about, non-qualified expenses would be subject to income tax and a 20% penalty.

But after age 65, that penalty no longer applies. So keeping track of your HSA activity and saving your forms will help making tax. Make tax filing simple, and that will ensure that you get the full tax benefits of your health savings account.

As you plan ahead, it's also important to understand how an HSA works later in life. The IRS does not allow account holders who are enrolled in any type of Medicare coverage the ability to continue contributing into an HSA. Because of that, it is really important to double check when your Medicare coverage begins. Keep in mind that Medicare coverage may be effective up to six months prior to your enrollment date, depending on when you sign up.

So when transitioning to Medicare, HSA owners can prorate their HSA contributions for the number of months they were eligible before Medicare coverage became active. While you may no longer be able to contribute to your HSA, once Medicare begins, you can continue to use your existing HSA funds. Saved HSA dollars can be used to actually pay for Medicare premiums and additional qualified out-of-pocket expenses, including deductibles, co-pays, and co-insurance.

So this allows you to continue getting value from your HSA even after contributions have effectively stopped. No matter where you are in your health care journey. The right tools can make managing your HSA easier. Optum provides many tools to help you manage your HSA, including online and mobile access, contribution tracking, and educational resources to support smarter spending and saving.

You can access your account online through the Optum website. This is where many people go to check their balance, make contributions, pay the bill or submit receipts after a doctor's visit. It is also where you can review your transactions and reimburse yourself or manage any investment activities that might apply to you. If you prefer managing things on the go, I heartily recommend the highly rated Optum mobile app, which offers many of the same features as our website.

For example, you can quickly check your balance, ask for an appointment, pay a bill, or reimburse yourself after an expense. One feature many people find very helpful is the ability to take a photo of a receipt and upload it right from your phone, so you don't have to keep track of any paperwork later. You also have the option to use your HSA payment card, which really can be the easiest way to pay at the doctor's office, pharmacy, or eligible medical expenses online.

When you use the card for qualified expenses, the money is automatically deducted from your HSA, which really eliminates the need to submit a reimbursement request.

As we close. Let's take a moment to review a few helpful tips that can make managing your HSA easier and help you avoid common issues. These are just a few simple steps that can help you manage your HSA with confidence. First, keeping your account secure is important even if you're not using your HSA regularly, it's a good habit to review your monthly statements.

This helps you to quickly spot any unexpected or suspicious activity that you may need to take action for. Next, consider adding a beneficiary to your HSA. Naming the beneficiary helps to ensure that any remaining funds are handled according to your wishes, and can be accessed more easily by your designated person. If something happens to you. Who you choose may also have tax implications, so it's worth reviewing your beneficiary designation from time to time.

And finally, remember, you can use your HSA payment card to pay for qualified medical expenses. This is a convenient option at the doctor's office, pharmacy, or for paying eligible expenses online without any need to submit that additional paperwork later. As you consider your benefits during open enrollment, think about how an HSA might support your health care needs today and in the future.

Be sure to review your options, complete your enrollment steps, and remember to complete identity verification if requested so your account is ready when you need it. We hope you found this webinar helpful, and I want to thank you very much for joining us today.