A Health Savings Account (HSA) custodian refers to any bank, credit union, insurance company, brokerage, or other IRS-approved financial institution that offers HSAs. These custodians are also often called HSA administrators and are responsible for holding HSA assets in a secure account. Here’s an in-depth look at what HSA custodians do, how to choose the right custodian, and understanding the associated costs.
Key Takeaways
- An HSA custodian is a bank, credit union, insurance company, brokerage, or other approved organization offering HSAs.
- HSA custodians may also be known as HSA administrators.
- HSAs were established by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.
Opening an HSA Account
You can open an HSA through your employer, who might either automatically enroll you with a particular HSA custodian or provide the option to switch. Before making any changes, consult your HR department about how it may impact payroll withdrawals to fund your HSA account.
If you decide to open an HSA independently, you can choose your custodian. The choice of custodian is essential, as factors like the interest you earn, the fees you pay, and the available investment options can significantly influence your HSA balance over time.
Minimize your fees and maximize your returns as with any financial account. Additionally, ensure that your cash balances are FDIC-insured and that your investments, if any, are SIPC-insured.
An HSA differs from a flexible spending account (FSA), which is an employer-sponsored account for setting aside pretax dollars for eligible healthcare expenses. Note that an HSA can’t be rolled over into a 401(k) or an individual retirement account.
A Closer Look at HSA Custodians
HSAs were created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 to allow individuals with high-deductible health plans (HDHP) to save money for medical expenses with preferred tax treatment.
An HSA custodian facilitates contributions, allowing individuals to withdraw funds to cover medical bills. These custodians even pay interest on cash balances held. Some financial institutions allow HSA account holders to invest in stocks, bonds, and other funds to achieve higher rates of return on money not immediately needed for medical expenses.
If opening an HSA on your own, be aware of any fees, available investments, and the degree of active management the account requires.
The Cost of HSA Custodians
HSA custodians typically charge fees for their services, with types and amounts varying by institution. Common fees include an annual administrative flat fee and a quarterly custodial fee based on your account balance. Excess contribution correction fees may apply if you exceed IRS annual contribution limits.
Details for 2023:
- Single coverage: Up to $3,850
- Family coverage: Up to $7,750
- Additional contribution: Eligible individuals 55 or older can contribute an extra $1,000.
Additional fees may exist for services like issuing extra debit cards to family members, replacing lost/stolen cards, insufficient funds, account closures, and stop payments.
Hypothetical Example of HSA Account Benefits
Consider how HSAs might lower monthly premiums. Suppose you have a $2,000 deductible on family coverage, resulting in a $800 monthly premium. Increasing your deductible to $5,000 could reduce your premium to $500 per month, saving $300 monthly, or $3,600 annually that you could potentially contribute to your HSA.
HSAs can serve as a strategic component of your financial and health planning. Choosing the right HSA custodian can lead to growth in your HSA funds while also maximizing the benefits of your health coverage.
Related Terms: flexible spending account, 401(k), individual retirement account, debit cards, FDIC, SIPC.
References
- Congress. “H.R.1 - Medicare Prescription Drug, Improvement, and Modernization Act of 2003”.
- Centers for Medicare and Medicaid Services. “Flexible Spending Account (FSA)”.
- Internal Revenue Service. “Publication 969 (2021), Health Savings Accounts and Other Tax-Favored Health Plans”.
- Internal Revenue Service. “Rev. Proc. 2021-25”, Page 1-2.
- Internal Revenue Service. “Rev. Proc. 2022-24”, Page 1.
