Whether you’ve secured a new job or you’re planning to travel, a move abroad is always an exciting time. But before you pack your bags, it’s important to tie up any U.S.-specific loose ends. One thing you’ll need to decide is how you want to handle your Health Savings Account (HSA).
What is a Health Savings Account?
An HSA is an enhancement of a High Deductible Health Plan (HDHP), that’s specific to the U.S. It is a savings account into which you can deposit pre-tax money in order to pay for qualified medical expenses tax-free. It grows tax-free in either an interest-bearing or investment account and you never lose access to your money. At age 65, your HSA turns into a traditional retirement account in that you can use your money on whatever you want, but any expense that isn’t a qualified medical expense, is subject to the appropriate income tax rate.
Can I use my account abroad?
In order to qualify to contribute to your HSA you must also be enrolled in an HDHP, which likely won’t be possible abroad, since every country has its own healthcare, insurance and retirement system. But you can still manage your account and investments while abroad and you might even be able to use your money to pay for medical care. Here are the scenarios in which you could potentially use your HSA in another country:
Prescriptions for medical care. These prescriptions must be legally prescribed in and legal to consume in the country you’re in. They must also be intended for consumption in the country you’re in. If you’ve abroad permanently (i.e. with no return ticket) the consumption rule will likely not be a problem. But if you’re traveling abroad, then prescriptions that would qualify would be those related to an illness you contracted while in the country and needed immediate treatment for. An example of this is antibiotics needed to treat an infection. The treatment regimen might extend beyond your return ticket home, but the initial chunk of the treatment was consumed and needed while you were in the country. It’s important to note that expenditures for general health or cosmetic reasons won’t qualify as an allowed HSA expense while abroad.
Medical treatments. Like prescriptions, the medical treatment you receive in the foreign country must be legal in said country for it to be eligible for an HSA reimbursement or payment.
Which countries accept United States HSAs?
Since your HSA is a savings or investment account that’s an augmentation to your health insurance plan (not a health insurance plan itself), your ability to use it in a foreign country doesn’t require that country “accept it”. You just have to know the best way to use it.
If your HSA provider issued you a debit card that has a Visa or Mastercard symbol on it, then you can use your card to pay for your qualified medical expense directly as long as the vendor accepts Visa or Mastercard payments. If the vendor doesn’t accept these payments, you will need to pay for the medical care first (most likely with local currency), then submit the required documentation for reimbursement.
Are there any limitations?
Using your HSA abroad is not the same as using it within the U.S. Here are the rules you need to know before using your HSA in another country:
- Prescriptions must be: legally prescribed, legal to consume in the country you’re in as well as the U.S., and consumed while in that country. They must also be prescribed for medical care (prescriptions for general health or cosmetic care don’t qualify even if they do in the U.S.). If you are on vacation in a foreign country and fall ill and need a prescription to treat that illness, you can use your HSA to pay for that prescription. Even if the tail end of the treatment regimen would be taken once you returned home (Ex: a 10-day antibiotic treatment that started while you were on vacation but continued after you arrived home).
- Medical treatments must be: legal in the country you’re in and for medical care. So you cannot use your HSA for cosmetic surgery tourism.
- In order to use your HSA for these expenses, you must be able to prove they were legally prescribed and purchased. For questions about how your provider wants your expenses documented, please reach out to them directly.
Should I even use my account abroad?
Like most things in life, the answer to this question is: it depends on the context. Most HSA providers charge a markup or conversion fee equal to about 1-3% of the total cost if you use your account-linked debit card abroad. There may be additional fees associated with using a foreign account and you might not receive a favorable currency conversion rate. That being said, there are some instances when using your HSA abroad will make sense.
When to use Your HSA abroad:
- If you need an expensive procedure and your out-of-pocket cost will be more than you can afford to pay off all at once, then it might make sense to use your HSA to cover the gap. While you will pay fees on your HSA distribution, the cost will likely be less than the interest you’ll pay for carrying the balance on your credit card.
- If your HSA provider doesn’t charge you extra fees for foreign transactions, then it might make sense to use your account to pay for qualified medical expenses abroad.
When you should keep your HSA money growing where it is
- You’re a legal resident of a country with universal healthcare. If you’ve moved to a country that has a national health system, and you can access that system because you’re a legal resident, then your medical costs are likely to be minimal. In many of these countries there is also a private health insurance market for private medical care, and said medical care could be considered a qualified medical expense. But if you have access to free (or mostly free) medical care, it might be more prudent to leave your HSA money where it is. Especially if you’re able to invest your contributions. The cost of using your contributions isn’t just the provider fees, you also lose the 8%-10% average annual growth those contributions make when they’re invested.
- You can’t submit the proper documentation to your HSA provider. If you can’t prove the expense was both legally prescribed and purchased, your distribution will likely be classified as a personal, non-qualified distribution. That means you will pay income taxes on the distribution as well as a 20% penalty.
Choosing the right provider
The best HSA provider for you is one that will allow you to grow your money (i.e. invest it), as well as use it abroad should you need to, and charge you as little as possible for the privilege.
If you determine that your current HSA provider is not the right one for you now that you will be living or traveling abroad, you can roll your HSA balance into a new account with a new provider. You simply notify your current HSA provider that you would like to close your account, they will cut you a check, then you are responsible for reinvesting your contributions into a new account within 60 days. You can do this once every 12 months. If you fail to meet the 60-day deadline, the IRS will consider your account closing a “taxable distribution” and you will pay income taxes and a 20% penalty on your entire balance.
Get started with Lively today
Lively offers you the best way to grow your HSA money through investment and savings accounts with low fees, thoughtful customer service and an industry-leading account management app. Interested in opening an HSA with Lively? Get in touch with us today!
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.