Health Savings Account Rules
3 min read •
30 sec brief
Health Savings Accounts (HSAs) are great tools you can use to pay for qualified medical expenses.
Health Savings Accounts (HSAs) are great tools you can use to pay for qualified medical expenses. With the fantastic tax benefits and portability these accounts offer you should consider opening one if you qualify.
Let’s go over a few of the most common rules that apply to HSAs.
What Insurance Plans Qualify?
The first question many have is “how do I get an HSA”? To open an HSA, you must be enrolled in a High Deductible Health Plan (HDHP). In 2019, an HDHP must have a deductible of at least $1350 for individuals and $2700 for families.
You do not have to be employed to have a qualifying HDHP; however, there are a few conditions you’ll have to meet to enroll. There are also things you can’t do, for example, you cannot be enrolled in Medicare. To find out what is required and not allowed, refer to IRS Publication 969.
What are the Contribution Limits?
You may be wondering how much money you can contribute to an HSA. In 2019, the following contribution limits will apply:
- Individuals can contribute up to $3,500
- Families can contribute up to $7,000
- Individuals over the age of 55 can contribute an additional $1,000 for “catch up contributions”.
What are HSA Eligible Expenses?
You can use HSA funds to pay for qualifying medical expenses. Generally, medical expenses related to diagnosing, curing, treating and preventing disease will qualify. Expenses you pay before meeting your deductible, copays, and payments to out-of-network providers usually qualify.
In addition, payments to providers, dental care and vision care also usually qualify.
Some items aren’t covered such as medicines and procedures from other countries, health club memberships, and many cosmetic procedures. The IRS provides a comprehensive list of qualifying medical expenses.
You can use HSA funds to pay for medical insurance premiums, but not for insurance premiums for which you’re claiming a tax credit or deduction, or that you paid using pre-tax payroll deductions.
Are There Withdrawal Penalties?
Let’s talk about withdrawal penalties. If you take money out of your HSA for anything other than qualified medical expenses, you’ll have to pay income tax on the amount, plus a 20% penalty. However, if you have saved receipts for qualifying medical expenses you have paid for out-of-pocket, you can apply those to the amount you withdraw and not have to pay the tax or penalty.
Once you turn 65, you can use your HSA funds to pay for Medicare premiums (except Medigap). Also, after age 65, distributions from your HSA are penalty-free, which means you can use the money for qualified and unqualified medical expenses without being penalized. However, you must remember that if you take a distribution for something that is unqualified, it will be taxable.
Like other saving accounts, HSAs have rules to follow to avoid penalty. However, once you learn the ins and outs of your specific account, they can be an amazing way to pay for healthcare costs now and in the future.
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