Health Savings Account

2020 and 2021 Plan Year Information

What Is an HSA and What Are Its Advantages?

A Health Savings Account, or HSA, is a tax-advantaged savings account you can use to pay for eligible health care expenses now and in the future. The HSA is a savings account—meaning you can save the money until you need it most. Whether you need it now, a few years down the road or after you retire, the money in your HSA is yours to use for eligible health care expenses whenever you choose.

The account is triple-tax advantaged, which means that:

  • Pre-tax contributions lower your taxable income.
  • Growth tax-free, even on investment earnings.
  • Tax-free distribution so you don’t pay taxes when you use HSA dollars to pay for eligible health care expenses.

The HSA is similar to a Health Care Flexible Spending Account (HCFSA), but there are a few important differences. While the funds in an HCFSA are meant to be used during the Plan year, the unspent funds in an HSA remain in your account from year to year, so you can save the money until you need it—even into retirement. You can also use the funds in your HSA account if you switch coverage or leave the Firm. As long as you use the funds for eligible health care expenses, there is no limit on how or when you use the money in your account. When you fund an HCFSA, the full amount of your election is available to you at the beginning of the year; with an HSA, only the amount you have already funded is available.

The Morgan Stanley HSA is only available to employees enrolled in Medical Plan Option C.

A Note About Taxes and HSA Contributions

You will not pay federal income taxes on contributions, earnings or withdrawals for eligible health care expenses. Some states, including California and New Jersey, apply state income taxes to all HSA contributions.

IRS Contribution Limits

With IRS limits that are significantly higher than for Flexible Spending Accounts, you can maximize your tax savings by making the full contribution amount:

  • Individual coverage:
    • 2021: $3,600
  • Family coverage:
    • 2021: $7,200
  • If you are age 55 or older, you may make an additional catch-up contribution of $1,000 annually until you become eligible for Medicare.

HSA Funds Are Yours to Keep

Any unused HSA funds remain in your account from year to year and earn interest or investment returns. And if you leave Morgan Stanley or select a Medical Plan option other than Option C, your HSA funds are yours to keep. The account is portable, even if you become unemployed, self-employed or employed at a small business and no longer receive insurance through an employer.

Once your balance reaches $500, you can also invest HSA funds over that amount, choosing from a range of investment options.

Rollover Funds

Any unused HSA funds roll over from year to year and earn interest.

Tax-Free Growth Over Time

Here’s what your savings could look like after contributing to your HSA for a few years.

2018201920202021
Yearly HSA Activity

Contribute: $200

Spend: $200

Year-end balance: $0

Contribute: $1,500

Spend: $500

Year-end balance: $1,000

Contribute: $1,500

Spend: $0

Year-end balance: $2,500

Contribute: $3,600

Spend: $1,000

Year-end balance: $5,100

How Your HSA Can Grow Year Over Year

Not sure how this whole HSA thing works, you play it safe and contribute $200 to your HSA to cover new glasses, and assume no additional health care costs.

Wanting to take advantage of the fact that unused HSA funds remain in your account, you put $1,500 in your HSA to cover any unexpected health care expenses. Your health costs total $750 — you cover $250 out-of-pocket and pay the other $500 from your HSA. (You keep your receipts for the $250 in case you need to reimburse yourself in the future.)

Again, you contribute $1,500 ($1,000 through paycheck deductions and $500 as a lump-sum when you receive your bonus). Since your only care is preventive — which the plan covers at 100% — you have no out-of-pocket expenses. Your HSA balance is now enough to cover Option C’s $2,300 individual deductible.

You contribute $3,600, the IRS annual maximum, and have $1,000 in health care expenses. (Who knew you’d need a root canal and crown?) Your diligent saving pays off, though: you have the funds to cover the bill. In fact, you end the year with $5,100 in your account. Keep it up, and you could build an HSA balance to help fund your health care costs in retirement.

HSA Eligible Expenses

Covered expenses include medical copayments and coinsurance, dental and vision expenses. Additionally, you can use the funds toward medical premiums and expenses for COBRA, health care exchange plans or Medicare plans. For a complete list of eligible expenses, download IRS Publication 502.

HSA Eligibility Rules

You can open and contribute to an HSA only if:

  • You enrolled in Medical Plan Option C.
  • You are not covered by another medical plan (such as your spouse’s plan or Medicare).
  • Your covered spouse does not have a Health Care FSA.
  • You are not claimed as a dependent on another person’s tax return.

How to Use Your HSA Account

When you or your eligible dependent has a health care expense that is not covered by your Plan, you can pay for the expense using the funds in your HSA account, up to the amount currently available in the account.  Your HSA is not prefunded; the amount available for reimbursement is the amount available in your HSA at the time of the reimbursement request. Your HSA offers three convenient ways to receive reimbursement:

  • HSA Debit Card
  • HSA Online Bill
  • HSA Online Reimbursement