What happens after I choose an HSA-qualified plan?

Once you choose an HSA-qualified plan, there are three basic steps you will need to take to get started with an HSA account.

Step one – open an HSA account.

Most people getting insurance through their employer will open an HSA with the vendor that their employer recommends. This is the easiest way to do it, especially if the employer facilitates the process and pays fees and makes deposits for you. There are an estimated 3000 banks, credit unions, investment firms and specialty vendors offering HSAs today. Many people choose the institution that they do all their other banking with, but that may not be the wisest choice. I recommend searching for HSA options through a site called HSASearch.com, which lists hundreds of options and allows you to compare fees, features, investment offerings, as well as customer ratings of the services they provide.

Step two – Activate your account.

Most HSA trustees will take application info directly from your employer or through an online application. Once you provide the information they need, they will run some mandatory background checks and may ask you do verify some info before opening your account.

Once you pass vetting, they will send a welcome kit with instructions about how to use your account. Most will also send a debit card for accessing your funds that you will need to activate like any other card you get from a bank.

Finally, you will be asked to name a beneficiary. This is very important, especially if you plan to name your spouse, since the HSA will pass to the spouse tax-free as an active HSA account, but would be subject to tax and liquidated if you name anyone else.


Step three – fund your account – as much and as soon as you can.

You cannot make deposits until your HSA-qualified health plan takes effect, but you should try to make a deposit on that date or as close to it as possible. Many employers will make a payroll deposit very early and accomplish this for you. If you incur out of pocket expenses before you “establish” your account with a deposit, you will not be able to use your HSA account to pay them, in most states.

Also fund your account as much as you can. Take advantage of employer contributions – free money is always good. Bank your premium savings into the account to fund expenses. But beyond the minimum, you should save as much as you can to maximize the amount of money you will have to pay for out of pocket expenses in retirement. The HSA is the best way to save and invest for future medical costs.

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Todd Berkley is an HSA industry veteran who runs AskMrHSA.com, and is the author of the HSA Owner’s Manual.


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