How to Open an HSA in Colorado

A health savings account (HSA) can make all your medical expenses tax deductible.

It can even allow your savings to grow tax-free and act as a second retirement fund. However, it must be set up the right way. The good news is that opening an HSA in Colorado is not as difficult as it might sound.

You can only contribute to an HSA if you have a qualified health insurance plan. If you don’t have a qualifying high deductible health plan, you can either find one that is HSA qualified or enroll in the MPB Select healthshare plan, which can also work with an HSA.

Once your HSA plan is in place, you just need to set up the HSA with any bank that offers them. HSA Bank is one of the most popular, but there are many others.

What Is a Health Savings Account?

Before we delve into how to open an HSA in Colorado, let’s touch on a few of the basics.For instance, what is a health savings account in the first place?

Really, it’s nothing more than a savings account specifically created to help you pay for eligible healthcare expenses that aren’t covered under your medical, dental, or vision plan, as well as to help you save for retirement. As such, an HSA can augment your 401(k), IRA, or other conventional retirement account, while making it more affordable to get the healthcare that you need today.

Are HSAs Legal in Colorado?

Yes, health savings accounts are legal in Colorado, as well as across the rest of the country.

However, there are stringent rules in place that govern how and when an HSA can be created, so you’ll need to make sure to dot your I’s and cross your T’s. Working with your Personal Benefits Manager can help ensure that you’re able to create the right HSA plan and choose the best bank possible.

Why Open an HSA in Colorado?

You’re already contributing to a retirement fund, and chances are good that you have health insurance.

So, why should you consider an HSA? Here are just a few reasons I think this should be a “no-brainer” for anyone who wants more peace of mind and affordability when it comes to their health and financial future:

• Tax Benefits: You benefit from tax-free contributions, tax-free qualified purchases, and tax-deferred interest and growth.
• Portability: HSAs are portable, allowing you to maintain and use your funds if you move out of Colorado, providing continuity and flexibility.
• No “Use It or Lose It”: Your HSA funds are always accessible to you and don’t expire, unlike some other health-related accounts.
• Supplement Retirement Accounts: HSAs can supplement your other retirement accounts, offering additional financial security during retirement.
• Investment Opportunities: When your balance reaches $2,000, you can invest and earn tax-free interest with many banks, potentially increasing your savings.
• Flexibility in Spending: While primarily for healthcare expenses, you can also use HSA funds for other needs, though non-healthcare uses may incur taxes.

Qualified Medical Expenses: 

HSAs can be used tax-free for a wide range of qualified medical expenses defined by IRS guidelines. 

These include preventive care (e.g., annual check-ups, screenings), dental services (e.g., cleanings, braces), prescription medications, and durable medical equipment (e.g., wheelchairs, hearing aids). The ability to use HSA funds for such expenses provides flexibility and financial support in managing healthcare costs effectively.

Triple Tax Advantage

No other investment vehicle offers the tax advantage of an HSA:

• Tax-Deductible Contributions: Contributions made to an HSA are tax-deductible, reducing taxable income for the year in which they are made.
• Tax-Deferred Growth: Any interest or investment earnings within the HSA are tax-deferred, allowing savings to grow faster over time.
• Tax-Free Withdrawals: Withdrawals for qualified medical expenses are tax-free at any age, making HSAs a powerful tool for tax-efficient healthcare planning and savings.

How to Open an HSA: A Guide for Coloradans

Ready to open your HSA and start growing your savings while ensuring you can afford your healthcare? Let’s get started.

Check Your Eligibility

Step one is to check your eligibility.

You’ll need to be enrolled in a qualifying high deductible health plan (HDHP) such as Cigna HDHP or KP HDHP (both are recommended by the Colorado Division of Human Resources, but there are others that qualify, too).

Next, make sure that you are not covered under any unqualified health plan. That means you cannot be enrolled in your spouse’s health care flexible spending account.

Your Personal Benefits Manager can explain which health plans are not qualified and help you make changes so that you conform to Colorado’s eligibility requirements. Colorado also explicitly states that you cannot be enrolled in either Medicare or Tricare, and you cannot be claimed as a dependent on anyone else’s taxes.

If you meet all these requirements, you’re eligible to open an HSA in Colorado. Note that if you don’t currently have an HSA-qualified HDHP plan, you can either enroll in one or choose to open an MPB Select healthshare plan. That plan will also work with an HSA. Not sure which one is the best fit for your needs, budget, and future? Talk with one of our Personal Benefits Managers to better understand what each offers so you can make an informed decision.

What Is a High Deductible Health Plan?

A High Deductible Health Plan (HDHP) is a type of health insurance plan designed to provide healthcare coverage with certain distinctive features:

• Higher Deductibles: HDHPs typically have higher deductibles compared to traditional health insurance plans. A deductible is the amount you must pay out-of-pocket for medical expenses before your insurance coverage kicks in.
• Lower Premiums: Due to the higher deductibles, HDHPs often have lower monthly premiums. This can be advantageous for individuals and families looking to save on healthcare costs while still maintaining coverage for major healthcare needs.
• Coverage for Essential Health Benefits: Despite higher deductibles, HDHPs typically cover essential health benefits required under the Affordable Care Act (ACA), such as preventive care, hospitalization, and prescription drugs.
• Out-of-Pocket Maximums: HDHPs also have annual out-of-pocket maximum limits, beyond which the plan covers 100% of covered expenses. This limit includes deductibles, copayments, and coinsurance, providing financial protection in case of significant medical expenses.

What About Costs, Contribution Limits, and Maximum Out-of-Pocket Expenses?

The IRS sets contribution limits for HSAs every year.

For 2025, they are $4,300 for anyone with a single plan and $8,550 for those with a family plan. The minimum deductible is $1,650 for the single plan and $3,300 for the family plan. Maximum out-of-pocket expenses are $9,200 for single plans and $18,400 for family plans.

Choose Your Bank

To set up an HSA in Colorado (or anywhere else in the US), you’ll need two things.

We’ve already touched on the HDHP, but you will also need a bank. As I mentioned already, you must make sure that your HDHP is HSA-qualified, which means that a bank can use it to set up your health savings account.

Note that some healthshare plans can take the place of a bank, such as the MPB Select plan.

What banks might you choose? Quite a few can help, including:

• Bank of Colorado
• Optum Bank
• Community Banks of Colorado
• PB&T Bank
• FirstBank
• Eastern Colorado Bank
• Sooper Credit Union
• Meridian Trust
• Credit Union of Colorado
• Colorado Credit Union
• Timberline Bank
• Bellco Credit Union

The list above is not complete – there are many other banks and credit unions throughout Colorado that can help you set up your health savings account. Make sure to compare things like maintenance fees, daily balance requirements, minimum opening deposits, and other factors that will affect your experience before deciding on a particular bank, though.

How to Use an HSA Effectively

Using your Health Savings Account (HSA) wisely involves understanding the process and maximizing its benefits:

• Keep Receipts: Always keep receipts for medical expenses paid with your HSA funds. This documentation is crucial for verifying that expenses are qualified under IRS guidelines.
• Reimbursement Process: Understand how to request reimbursements from your HSA administrator. Typically, you’ll submit a claim form along with receipts or other documentation. Reimbursements can be processed electronically or by check, depending on your HSA provider.
• Leverage Online Tools: Many HSA administrators offer online portals or mobile apps to manage your account. Use these tools to monitor your balance, track expenses, and submit reimbursement requests.
• Automatic Payments: Set up automatic payments for recurring medical expenses, such as prescriptions or monthly premiums. This ensures timely payments and helps you stay organized.
• Plan for Future Expenses: Use your HSA to save for future healthcare needs, such as deductibles, copayments, and unexpected medical costs. Maximize contributions to take advantage of tax benefits and build a robust healthcare fund over time.
• Tax Reporting: Understand the tax implications of your HSA transactions. Qualified medical expenses are tax-free when paid with HSA funds, but non-qualified expenses may incur taxes and penalties.
• Review Statements Regularly: Monitor your HSA statements regularly to track contributions, withdrawals, and investment earnings. This helps ensure accuracy and identify any discrepancies promptly.

By following these practical tips, you can effectively manage your HSA funds, optimize tax savings, and maintain financial flexibility for healthcare expenses.

Here’s to Your Health and Wealth!

Opening an HSA is a smart decision that can have profound effects on your health and wealth today and down the road.

It allows you to deduct medical expenses from your taxes, essentially making them free!

You can also allow your savings to grow tax-free.

However, perhaps the most important benefit of a health savings account is the peace of mind it can offer. You’ll have money available to cover second or third options, alternative treatments, and doctors who might be outside your network to name just a few of the benefits.

Are you interested in learning more about health savings accounts? Need help choosing the right HDHP? Speak with one of our Personal Benefits Managers today.

They’ll help you chart a course forward with confidence.