HSA Tax Advantages

2020 and 2021 Plan Year Information

Triple-Tax Savings

If you enroll in Medical Plan Option C, you can contribute to a Health Savings Account (HSA) to use tax-advantaged dollars to cover your deductible and coinsurance payments. You can also use the money for any eligible medical, prescription drug, dental or vision expense you incur now, or in the future — even if you switch plans, leave the Firm or retire.

With an HSA, you get triple-tax savings. Here’s how:

  • Before-tax paycheck and lump-sum contributions to your HSA lower your taxable income. Depending on your tax bracket, you save 25 to 40% on taxes by contributing to an HSA.
  • Any gains from interest or investments are tax-free.
  • Tax-free distributions mean you don’t pay taxes when you use HSA dollars to pay for eligible medical expenses

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.

Signing Up for a Health Savings Account (HSA)

If you enroll in Option C coverage under the Medical Plan, you can also elect to contribute to an HSA. An HSA allows you to save for future health care expenses tax-free. Depending on your health care needs, you can use your HSA to pay for eligible expenses now or let the account grow with tax-free earnings to use for health care costs in the future, even during your retirement. The HSA is administered by Your Spending Account (YSA) through UMB Bank.

Adding Funds to Your HSA Account

You may contribute through automatic paycheck contributions, or through lump-sum payments.

  • Paycheck contributions: The annual contribution amount you elect during enrollment is prorated and deducted in equal installments throughout the year. You may make changes to your HSA contribution amount at any time during the year. Changes generally will take effect during the next available payroll period following your election change.
  • Lump-sum contributions: You may make 2021 lump-sum HSA contributions until April 15, 2022.

If you make a lump sum contribution, be sure to adjust your paycheck contributions, if applicable, to ensure your total annual contribution does not exceed the IRS limits.

Using the Funds In Your HSA Account

  • Eligible expenses: You can use HSA funds, up to the amount currently available in your account, toward any eligible medical, dental, vision or prescription drug expenses (See IRS Publication 502 for more information about eligible expenses).  Unlike a Health Care Flexible Spending Account (HCFSA), your HSA is not prefunded at the beginning of the year. The amount available for reimbursement is the amount available in your HSA at the time of the reimbursement request. Under current law, you can even use your HSA to pay for eligible medical expenses after you retire, such as Medicare Supplemental Insurance premiums, Long-Term Care premiums, prescription drugs and medical devices. Or, if you terminate your employment with Morgan Stanley, you can use the funds to pay for care provided through federal or state exchanges or programs or for COBRA premiums.
  • Paying for care: When you enroll in an HSA, you will receive a debit card, the Your Spending Account (YSA) card, to conveniently pay for eligible items, such as prescription drugs at the pharmacy. You have the option to pay your out-of-pocket costs with your debit card (if funds are available) or you may submit a claim for reimbursement when funds become available. Note: Unlike an FSA, you do not have to use your HSA to pay for health care during the plan year. In fact, under current law, you may choose to submit a claim for reimbursement at any time there are funds in your HSA. For example, you could submit an eligible 2021 expense to be reimbursed in 2031, 10 years later.

Investing Your Health Savings Account Dollars

When your HSA account balance reaches $500, you can choose to invest any funds in your account over that amount in one or more available investment funds. Any earnings on the funds in your HSA are distributed tax-free if used to cover eligible health care expenses now or at any time in the future. Note that investment funds may fluctuate with market conditions and that past performance is no indication of future results. It is possible that the market value of your HSA will decrease.

See the HSA Investment options.

Owning the Funds In Your Account

You own the money in your account, which means you keep the funds if you switch medical coverage, leave the Firm or retire. There is no “use-it-or-lose-it” feature with an HSA.

Maximize Your Savings with a Limited Purpose FSA

A Limited Purpose FSA is like a traditional FSA, but may be used only for eligible dental and vision expenses. If you enroll in Option C, you may elect to contribute to an LPFSA in addition to, or instead of, your HSA. If you use your LPFSA for dental and vision expenses, you can save your HSA money for health care expenses in the future. You may not elect to contribute to an LPFSA if you enroll in Options A or B under the Medical Plan (but you can contribute to a Health Care FSA).

The 2021 annual LPFSA contribution limit is $2,750.

Note: If you do not elect to contribute to a LPFSA, you may pay for dental and vision expenses from your HSA. When making your election on the benefits election website, note that this option will appear as “Health Care FSA.”

HSA Advantages and Limitations

Advantages

  • Triple-tax savings
  • High contribution limits to maximize tax savings
  • Money earns interest and grows tax free
  • You own it – there’s no “use it or lose it”
  • Save for future health care expenses or for eligible expenses during retirement
  • Pair with an LPFSA for even more tax benefits
  • Conveniently pay for care with the YSA debit card

Limitations

  • Only eligible to contribute to an HSA if you are enrolled in Option C coverage under the Medical Plan, which has a higher deductible and out-of-pocket maximum than other available Firm-provided medical options
  • Cannot contribute to an HSA if you have a Health Care FSA or are already receiving Medicare benefits
  • Your HSA contribution election is not prefunded on the day your new benefits begin (January 1 if you elect an HSA during Annual Enrollment)