Health Saving Accounts - known as HSAs - offer amazing benefits. Many financial advisors tout the triple tax advantages they offer and the fact that can use them as an additional retirement account.
HSAs are also good for the short term; you can use HSA funds for medical costs you have right now. Qualified medical expenses like dental and optometry expenses, big purchases like Lasik eye surgery and teeth straightening, and smaller medical needs like eyeglasses are all HSA-eligible.
Let’s discuss how you can use your HSA right now.
What is an HSA?
A Health Savings Account (HSA) is an account that individuals covered under a high-deductible health plan (HDHP) can use to save for qualified medical expenses.
In addition, HSAs offer the following triple tax advantages:
- Contributions are made pre-tax, lowering your taxable income
- Interest earned in the account is tax-free
- Funds withdrawn for qualified medical expenses are tax-free
Do You Qualify for an HSA?
If you’re enrolled in a high-deductible health plan (HDHP), you’ll likely qualify for an HSA. However, not all HDHPs qualify, so look for plans tagged as “HSA eligible.”
In 2020, HSA eligible plans have a minimum deductible of $1,400 for individuals and $2,800 for families. They also require an out-of-pocket maximum of $6,900 for individuals and $13,800 for families.
How HSAs Work
Some companies offer HSAs for those who have a high deductible health plan. If your company doesn’t, you can open your own HSA account, as long as your policy is “HSA-eligible”.
You decide how much to contribute each year, though you can’t exceed the maximum contribution limits. For 2020, the HSA limits are $3,550 for individuals and $7,100 for families. For 2021, the HSA contribution limits are $3,600 for individuals and $7,200 for families.
Once established, you’ll get a debit card or checks linked to your HSA. You can use those funds on qualified medical expenses.
Your HSA balance rolls over every year, so you don’t have to worry about the “use-it-or-lose-it” concern of other types of accounts. Once you turn 55, you can contribute an additional $1,000 above the yearly maximum as a “catch-up contribution.”
When you turn 65 and enroll in Medicare, you can no longer make contributions to an HSA, though, you can use the funds for qualified medical expenses.
If you want to use HSA funds for non-qualified expenses prior to age 65, you’ll have to pay income tax and a penalty on the withdrawn money. After 65, you’ll only pay income tax on money used for non-qualified medical expenses - the penalty no longer applies.
What are the Short Term Benefits of an HSA?
There are many medical expenses you can use your HSA funds for. For a complete listing, check out IRS Publication 502.
Here are some items you can use your HSA funds on now:
- Massage Therapy (with letter of medical necessity)
- Chiropractic fees
- Psychological counseling
- Addiction treatment
- Assistive devices like hearing aids, home adaptations for the disabled, and even to purchase a guide dog are HSA eligible
You can’t use your HSA funds to buy everyday groceries or at your favorite restaurant - they are considered food normally consumed to satisfy nutritional needs.
However, there are certain types of food an HSA will cover as long as the following criteria are met:
- The food doesn’t satisfy normal nutritional needs
- The food alleviates or treats an illness, and
- The need for the food is substantiated by a physician
Vitamins and supplements may be covered if recommended by a physician for the treatment of specific medical conditions.
Ancillary Health Needs
Your HSA funds can be used to help pay for several ancillary health needs you may have:
You can use your HSA funds for eye exams. Plan to have an eye exam every two years to keep on top of eye health. If you end up needing vision correction, glasses, contacts and even laser eye surgery such as LASIK are HSA eligible.
You can include medical expenses related to the prevention and alleviation of dental disease. Common dental procedures that are HSA-eligible include:
- Root canals
Other dental services like check-ups and dental cleanings are covered under HSAs. Some services may include a co-payment, so check with your insurance provider to figure out what you will have to pay out-of-pocket.
Dental coverage can get a bit confusing. Here are a few items not covered by HSAs:
- Toothpaste, toothbrushes, floss, and mouthwash
- Teeth-whitening (it’s considered cosmetic, therefore not HSA eligible)
Seasonal Health Needs
The American Academy of Dermatology recommends sunscreens that are water-resistant, offer broad-spectrum protection (UVA and UVB) with at least 30 SPF. HSAs cover all types of over-the-counter sunscreens. Physical and chemical sunscreens are eligible.
It’s always a good idea to have a First Aid kit around. You can buy a pre-made kit or items to assemble your own with HSA funds.
Allergy Testing is HSA eligible. The three tests typically used for allergy testing include the skin prick test, skin injection test, and patch testing.
Prescription and over-the-counter allergy medication are HSA eligible. Be sure to keep the documents to prove the medical necessity for prescription medications.
There are several other seasonal health needs covered under HSAs such as: Lip balm
- Aloe vera
- Prescription sunglasses
- Athletic tape
- And many more…
You can view more items that you can use with your HSA on Lively's Eligibility List.
HSAs offer short term benefits to help you live your best life right now, as well as build a nice cushion for future medical costs.
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.