Do you have a Health Savings Account (HSA)? Or maybe you are thinking about getting one? How would you like to test your knowledge about HSAs? Here are a few Health Savings Accounts tips that may have escaped your detection.
#1 – You can cash in later
You know HSAs help pay for covered healthcare expenses. Right? But, did you know there is no time limit on getting reimbursed? As long as you incurred the expenses after you set up your account, you can get your tax-free reimbursement any time in the future. Seriously, any time. Also, unlike a 401k, there is no mandatory distributions after a set age. If you never want to make distributions, you don’t have to. Here’s the catch. You have to keep those receipts. Hey, it is IRS-governed, after all.
#2 – HSAs cover more than the typical medical plan
Want to banish your eyeglasses? Wish you could get help with paying for LASIK surgery? HSAs can help. IRS-qualified healthcare expenses include more than your average medical plan, like dental and vision care (including LASIK surgery, even if you don’t have a dental or vision plan).
Hearing aids are another big item that most medical plans don’t cover but they are qualified healthcare expenses under your HSA. You can check out the IRS site for the details. Lots and lots of details.
#3 – After age 65, you are penalty-free for non-medical expenses
“What!!?? Are you serious?” Yep! You can use your HSA savings for non-medical expenses. However, there are consequences (bet you expected that).
- The IRS taxes funds withdrawn for non-medical expenses – AND –
- You get hit with a 20% penalty
But wait. There is a very BIG exception. If you already celebrated your 65thbirthday (Happy birthday!), you can withdraw the money for non-medical expenses with no penalty.
You WILL be taxed on withdrawals used for non-medical expenses – no matter your senior citizen status.
#4 – Your HSA stays an HSA if your spouse inherits it
What happens if you still have your HSA when you pass away? If you named your spouse as your beneficiary, your spouse takes over the HSA.
- He or she is subject to the same HSA rules and regulations.
- That includes receiving tax-free distributions for qualified healthcare expenses.
If you did not name a beneficiary or named someone other than your spouse, the HSA is no longer an HSA but taxable income for the person inheriting the account. By the way, some states make you have the consent of your spouse if you try to do an end-run around naming your spouse as a beneficiary.
#5 – You can keep your HSA even when changing medical plans
Most HSA account holders know the account is theirs to keep. Even if they change jobs, they take the HSA with them.
- But what happens if you change your medical plan?
- What happens if the new plan is not a qualified High-Deductible Health Plan (HDHP)?
An HDHP is a requirement to set up and contribute to an HSA. But, did you know if you change to a non-HDHP, you can still use your established HSA?
That’s right. You can take tax-free withdrawals for reimbursing qualified healthcare expenses. You just won’t be able to make new contributions to your savings plan. How did you do?
Disclaimer: As always, the information provided is for your general background only and is not intended to constitute legal or tax advice as to your specific circumstances. We recommend you review legislation with legal counsel and visit your tax advisor for tax assistance and advice. We also recommend that you optimize your healthcare spending, maximize your savings, and better your livelihood!
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.