A Healthy Approach – The Ins and Outs of HSAs

health savings accounts may cover eye exams

Health Savings Accounts (HSAs) allow holders to save for future medical expenses by contributing funds before taxes.

Here’s a little history, HSAs were created in 2003 and an estimated $42.7 billion is held in over 21 million HSA accounts 15 years later. Read up more on HSAs below and join the saving movement!

You’ll Save Money on Medical Expenses

Thanks to HSAs allowing you to set aside money on a pre-tax basis to pay for qualified medical expenses, you won’t pay federal income tax on your HSA deposit. Simply put, the $200 you deposit into the account escapes being depleted by your income bracket percentage (from 10-37%). By putting funds towards future qualified medical expenses, your money goes further.

Note, if you withdraw the money for non-medical expenses you will incur penalties. If you are over the age of 65 however, you may be able to use any leftover funds tax-free.

You Can Start an HSA if You Have an HSA-Eligible, High-Deductible Health Plan

People often choose high-deductible health plans (HDHP) to save money on their monthly insurance premiums. HSAs offer an additional savings by letting you use untaxed funds to pay for health care expenses before you reach your deductible and other out-of-pocket costs like co-payments.

How do you know if you have an HDHP? To quote healthcare.gov:

“The IRS defines a high deductible health plan as any plan with a deductible of at least $1,300 for an individual or $2,600 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, co-payments, and co-insurance) can’t be more than $6,550 for an individual or $13,100 for a family. (This limit doesn’t apply to out-of-network services.)”

Check Your Financial Institution for HSA Plans

Whether you currently bank at a credit union, bank or another form of financial institution, you’ll want to shop around for the best option. This article by “the balance” suggests you contact your financial institution and then speak with a broker or financial advisor to help you evaluate your options.

Here are a few great questions to ask:

  • What are the administrative charges or fees for this account?
  • Will you waive those fees while my balance is under a certain amount?
  • What is the process for withdrawing money or being reimbursed for a medical claim?
  • Will I be given a debit card to use?

Your HSA Money Will Never Expire

All unspent HSA funds deposited into the account carry over into the next year. Unlike flexible spending accounts (FSAs), HSA funds do not expire if you don’t spend them within a certain amount of time. Unlike Health Reimbursement Arrangements (HRAs) that are set up and owned by an employer, HSAs are owned by the individual. Some plans even earn interest!

If your insurance coverage is no longer HSA-eligible, you can no longer deposit funds into the account, but the existing funds are still available for you to spend on qualified medical expenses.

Catch-Up Contribution

HSAs have annual contribution limits, but if you are 55 or older, you are allowed a “Catch-Up Contribution” of an extra $1,000

In 2018, single holders may not deposit more than $3,450 into an HSA and family limits are $6,900. Contributions from any source go towards the contribution limit. The annual HSA contribution limits are posted here.

Anyone (Even Your Employer) Can Contribute to Your HSA Account on a Pre-Tax Basis

If that option is not available through your employer, contributions may be made on a post-tax basis and then used to decrease gross taxable income on the following year’s Form 1040.

Note, all deposits to an HSA become the property of the policyholder.

You Can Pay for Many Medical Expenses With an HSA

The IRS deems an expense as “medical” if it is “primarily to alleviate or prevent a physical or mental disability or illness.”

Examples of qualified medical expenses include annual exams, hospital services, and home care. Additionally, they include things like contact lenses, crutches, many dental procedures, chiropractor and acupuncture visits, eye exams and eyeglasses, care from psychiatrists and psychologists, and the amount you pay for prescription medicines. Over-the-counter medications qualify only if you have a doctor’s prescription.

Plus, medical expenses include the premiums you pay for insurance that covers the expenses of medical care and the amounts you pay for transportation to get medical care.

Costs that aren’t covered? “…expenses that are merely beneficial to general health, such as vitamins or a vacation.”

The list of qualified medical expenses is very long, but browsing it is well worth your time! You may be surprised at some of the things you can use your HSA funds for.

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