How Does HSA Annual Election Work?

Choosing your HSA annual election is an important decision that affects your healthcare expenses and savings. Each year, during your open enrollment period, you have the opportunity to select how much money you want to contribute to your HSA for the upcoming year.

Here's how the HSA annual election works:

1. When your employer offers an HSA, you can decide how much money you want to contribute each year. This amount is deducted from your salary on a pre-tax basis.
2. The money you contribute to your HSA is tax-deductible, meaning you can lower your taxable income by contributing to your account.
3. During open enrollment, you can review your healthcare needs and expenses from the previous year to help you determine how much to contribute to your HSA for the next year.
4. Keep in mind that there are annual contribution limits set by the IRS, so make sure you stay within these limits to avoid any penalties.
5. Once you've selected your annual election amount, your contributions will be automatically deducted from your paycheck throughout the year.
6. You can use the funds in your HSA to pay for eligible medical expenses tax-free.
7. Any unused funds in your HSA roll over from year to year, allowing you to save for future healthcare costs.
8. If you switch jobs or insurance plans, your HSA is portable, meaning you can take it with you and continue to use the funds for qualified medical expenses.

When you make your HSA annual election, it’s crucial to assess both your expected healthcare needs and your financial goals, as this decision can lead to significant tax savings.