Are you considering adding a health savings account (HSA) to your health coverage strategy in 2023? An HSA is one of the most cost-effective ways to get insurance. They offer compelling benefits, but you must consider many factors before opening an HSA in 2023.

Here's what you need to know.

What is an HSA?

Let's start with the basics.

An HSA is a triple tax-advantaged savings account purpose-built to help you manage health care costs. The amount you put into the account, up to the 2023 HSA contribution limits, is tax-deductible. The interest you earn from your HSA is tax-deferred, while the qualified medical expenses you pay for with this account are tax-free.

Unlike FSAs, HSAs aren't tied to your employment. Therefore, you can keep your HSA for years and create a comfortable nest egg for healthcare coverage.

HSA Requirements

There are many strict rules and requirements to have an HSA. For example, you only qualify to open an HSA if you have a high-deductible health plan (HDHP) and no other coverage.

As the name implies, an HDHP has a substantially higher deductible than other health insurance policies. You pay more out-of-pocket costs before your coverage kicks in. The advantage of an HDHP is that you have lower premiums and become eligible for an HSA. Fortunately, you can use your HSA for insurance deductibles, copayments, coinsurance, etc.

What are the 2023 HSA Contribution Limits?

With so many great benefits of having an HSA, the IRS limits how much you can put into the account annually. For 2023, the contributions are $3,850 for self-only coverage and $7,750 for family coverage.

If you're 55 or older, you can contribute an additional $1,000 every year. It's considered a catch-up contribution.

The contribution limit typically changes annually. One of the biggest advantages of an HSA is that it can continue growing throughout your life. There are no limits on how much of your HSA you can use annually. Whether you use several thousand dollars a year or leave it all untouched, the amount in your HSA will continue to grow tax-free.

Author Resource:-

Daniel Stewart has been helping people with their money management and personal finance with over 15 years’ experience in business finance. You can find his thoughts at HSA strategy blog.