Contributing to a Health Savings Account in 2014

I signed up for a high-deductible health insurance policy for 2014. Am I eligible to contribute to a health savings account? And if so, where can I open the account?

To make tax-deductible (or pre-tax) contributions to a health savings account in 2014, your health insurance policy must have a deductible of at least $1,250 for individual coverage and $2,500 for family coverage. Plus, all covered benefits (except for preventive care) must be subject to the deductible; some plans, for example, don’t meet the requirements because they don’t have a deductible for drug benefits. Ask your health insurer whether your policy qualifies. Some providers clearly mark their HSA-eligible policies (Cigna, for example, calls its policies “myCigna Health Savings”), but others do not.

You may purchase an HSA-eligible policy through your employer, through the health insurance exchanges, or directly from an insurer or agent. Research firm HSA Consulting Services found that 42% of the bronze policies, 15% of the silver policies and 9% of the gold plans sold on the 36 federally run exchanges are HSA-eligible. “If you’re going to take a high deductible, you might as well take the HSA to pay for those expenses on a tax-free basis,” says president Todd Berkley. If you’re buying directly, eHealthInsurance.com makes it easy to search for HSA-eligible policies and find a health savings account administrator.

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You can contribute up to $3,300 to a health savings account if you have individual coverage, or up to $6,550 for family coverage in 2014. You can add an extra $1,000 to the HSA if you're 55 or older in 2014. Your contributions are tax-deductible (or pre-tax if through an employer plan), and the money may be used tax-free in any year to pay for your deductible and other out-of-pocket medical expenses.

You may open an HSA at many banks and brokerage firms. Your employer or insurer may pair your policy with a particular HSA, but you aren’t required to get the account through that administrator. Be careful, however, that you don’t give up any matching contributions; employers offering Fidelity HSAs, for example, contribute a median of $600 for singles and $1,200 for family coverage to employees’ accounts.

Eric Remjeske, president of consulting firm Devenir, identifies two types of HSA users: short-term saver/spenders and longer-term saver/investors. Short-term savers are looking to deposit money into an HSA and use it for medical expenses in the next six to 12 months. If you’re a short-term saver, look for a low-cost provider that links your bank account or other funding source to the HSA so that the funds are conveniently available. But you’ll get the biggest tax benefits if you use the HSA as a longer-term investing vehicle (see Strategies for Your Health Savings Account). That means using other money for current medical bills and keeping HSA money growing tax-free for future medical expenses. Remjeske recommends that longer-term saver/investors look for an HSA that offers investments in mutual funds from a variety of fund companies and investment styles. “Also consider the total fees for the features you want as some of them can add up,” he says. You can search for HSA administrators using Devenir’s HSA search tool.

Some HSA providers give you a variety of investing choices. HSA Bank, for example, lets you invest in mutual funds, stocks and other investments through a TD Ameritrade brokerage account (including about 2,600 no-transaction-fee mutual funds and more than 100 commission-free ETFs). It pays to keep a high balance in the account; the $2.50 monthly account maintenance fee and $3 monthly investing fee are waived if you have at least $4,925 in your account in 2014.

Health Savings Administrators offers 22 Vanguard funds with an average expense ratio of 0.21%. The firm charges a $45 annual fee and a custodial fee of 80 cents per $1,000 invested (capped at $16 per fund per year).

Cigna pairs its high-deductible accounts with Chase HSAs, which offer 36 no-load mutual funds managed by 12 different investment managers. The firm was charging a $2.50 monthly fee to participate in the investment account, but the fee will be waived starting on January 1, 2014.

For more information about HSAs, see FAQs About Health Savings Accounts.