Health Savings Accounts (HSAs) are tax-advantaged savings accounts designed to help you pay for healthcare expenses. They’re intended to be used with High Deductible Health Plans (HDHPs) and offer a great way to save for future medical costs.
Wells Fargo, like many large employers, offers HSAs to its employees who are enrolled in HDHPs.
This article will cover the benefits of an HSA, how you can contribute to it, what investment options might be available, and other important details about using a health saving account. We’ll primarily focus on the features and access offered by Wells Fargo.
What are health savings accounts (HSAs)?
A health savings account (HSA) is a tax-advantaged savings account you can use for certain healthcare costs. With an HSA, you may be able to deduct your contributions from your gross income. The money in the account grows tax-free, and you can withdraw it tax-free to pay for qualified medical expenses.
One thing to remember is that you can only open an HSA if you’re enrolled in a high-deductible health plan (HDHP).
In addition to being enrolled in an HDHP, you must also meet these requirements to be eligible for an HSA:
- You can’t be covered by any other non-HDHP health insurance policies (though there are some exceptions).
- You can’t be enrolled in Medicare.
- You can’t be claimed as a dependent on anyone else’s tax return.
Benefits and Drawbacks of a Wells Fargo HSA
Like other health savings accounts, the Wells Fargo HSA offers a mix of pluses and minuses.
Pros of Having an HSA Account
- Tax advantages. The money you contribute is tax-deductible, the earnings grow tax-free, and you won’t pay taxes on withdrawals as long as you use the money for qualified medical expenses.
- Portability. You, not your employer, own the HSA, so you can take it with you if you change jobs.
- Investment opportunities. You can invest the funds and potentially grow your savings over time.
Cons of Having an HSA Account
- HDHP requirement. To open an HSA, you must be enrolled in a high-deductible health plan, which typically means you’ll pay more out of pocket before your coverage kicks in.
- Contribution limits. The IRS sets annual limits on how much you can contribute to an HSA.
- Non-qualified withdrawals. If you use the money for something other than qualified medical expenses, you’ll have to pay income tax on the distribution, plus a 20% penalty.
HSAs vs. HRAs: What’s the difference?
Health Reimbursement Accounts (HRAs) are another type of health benefit. Your employer funds an HRA, and you use the funds to get reimbursed for approved medical expenses.
Here are the key differences between an HSA and an HRA:
- Ownership: You own your HSA, even if your employer contributes to it. Your employer owns the HRA.
- Portability: You can take your HSA with you if you leave your job. You may lose access to HRA funds if you are terminated or resign.
- Funding: You and your employer can contribute to an HSA. Only your employer can fund an HRA.
Wells Fargo Health Plan Options: HDHP vs. LDHP
When you’re choosing your healthcare coverage at Wells Fargo, you’ll likely have a choice between a High Deductible Health Plan (HDHP) and a Low Deductible Health Plan (LDHP).
High Deductible Health Plans (HDHPs)
HDHPs typically come with lower monthly premiums, but you’ll pay more out of pocket before your insurance kicks in. These plans are often a good fit if you’re generally healthy and don’t expect to need a lot of medical care throughout the year.
In 2022, Wells Fargo family HDHPs had deductibles that ranged from $3,300 to $5,700 for in-network care.
Low Deductible Health Plans (LDHPs)
LDHPs have higher premiums, but lower deductibles and out-of-pocket costs. If you know you’ll need regular medical care or prefer paying less when you go to the doctor, an LDHP might be a better choice.
In 2022, Wells Fargo LDHPs had deductibles of $1,000 and $1,900.
Choosing the Right Plan
When you’re deciding which plan is right for you, think about how much medical care you expect to need in the coming year. Compare the overall costs of each plan, including premiums, deductibles, and copays, to see which one makes the most financial sense for your situation.
Contributing to your Wells Fargo HSA
There are a few different ways to put money into your HSA account.
Methods of contribution
- Payroll deductions. You can have your HSA contributions automatically deducted from each paycheck before taxes.
- Direct contributions. You can also make contributions directly to your HSA account.
Contribution limits
Each year, the IRS sets limits on the amount of money you can contribute to your HSA. For 2024, those limits are:
- $4,150 (individual)
- $8,300 (family)
- People 55 and older can contribute an additional $1,000 as a “catch-up” contribution.
Employer contributions
Your employer may contribute to your HSA or HRA account, but the amount can vary depending on the specifics of your plan and your income level. Check with your HR department to see if your employer offers this benefit.
How to access and manage your HSA funds
You can typically get to your HSA money in one of two ways:
- Use a debit card linked to your HSA to pay for eligible healthcare expenses.
- Pay out of pocket and then request a reimbursement from your HSA.
Wells Fargo has partnered with Optum Bank to manage HSAs. You’ll need to register an account at Optum Bank where you can monitor your balance, track your spending, and make investment decisions.
Investing your HSA funds
One of the biggest advantages of using an HSA is the option to invest your funds. Wells Fargo currently works with Optum Bank for HSA accounts, and Optum Bank offers investment options to accountholders.
Typically, you’ll need to maintain a certain balance in your HSA before you can start investing – often around $2,000. This ensures you have enough liquid cash to cover immediate healthcare expenses.
The real power of an HSA comes from its potential for growth. By investing your HSA funds wisely, you can potentially increase your savings over time, creating a larger pool of money to cover healthcare costs in retirement. You can also potentially reduce your tax burden.
Tax advantages and qualified medical expenses
Health savings accounts come with a triple tax benefit:
- Your contributions are tax deductible.
- Any earnings you have in the account grow tax-free.
- Withdrawals are tax-free as long as you use the money for qualified medical expenses.
The IRS defines qualified medical expenses as amounts you pay for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any part or function of the body. Some examples include payments to doctors, dentists, and vision care professionals, as well as payments for prescription medications.
What happens to your HSA if you leave Wells Fargo?
Your HSA is yours. It’s an account that belongs to you, not Wells Fargo. So, if you leave your job, your HSA goes with you.
You can keep using the money in your HSA to pay for qualified medical expenses, even if you’re no longer working for Wells Fargo.
To Conclude
A Wells Fargo HSA offers tax advantages, portability, and investment opportunities, all of which can help you manage your healthcare expenses.
To decide whether a Wells Fargo HSA is right for you, consider your healthcare needs, financial situation, and investment goals. Talking with a financial advisor can also help you determine if an HSA makes sense for you.