Health Savings Account - What you should know about HSA

What is a Health Savings Account?

A Health Savings Account (HSA) is a tax-advantaged medical savings account you can contribute to and draw money from for certain medical expenses tax-free (in the US). HSAs can be used for out-of-pocket medical, dental, and vision. HSAs can’t be used to pay health insurance premiums. Health Savings Account’s can only be used with “High Deductible Health Plans” that count as “Minimum Essential Coverage (MEC)“. 

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Note: HSA’s aren’t “use it or lose it” they are tax free in, keep it, invest it, use it tax free on medical expenses, withdraw whenever at a fee, and roll it over into a retirement account when you are ready for Medicare. Only FSA’s are “use it or lose it” (the kind of health savings account you get through your employer).
Source: ObamaCare. 

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Health Savings Accounts FAQs

A health savings account can be a powerful financial tool to cover medical expenses and save for the future.

As employers search for ways to lower their health care costs, they’re encouraging employees to sign up for a high-deductible health insurance policy paired with a health savings account. An HSA gives you a triple tax break: Your contributions are sheltered from income taxes, the money grows tax-deferred, and the funds can be withdrawn tax-free for medical expenses. It’s like a supercharged flexible spending account that never expires, and it can even serve as an extra retirement-savings fund. Most employers also add a few hundred dollars to the accounts each year as a bonus. Below we answer your questions about how HSAs work and how to make the most of them.

How do I know if I can make HSA contributions? 

If your policy has a deductible of at least $1,300 for individual coverage and $2,600 for family coverage in 2015, you may be eligible to contribute to an HSA. But not all high-deductible policies are HSA-eligible. The policy must also make everything subject to the same deductible (other than preventive care, which must be covered by all health plans without any deductible or cost-sharing). Some plans, for example, aren’t eligible because they have a separate deductible for prescription drugs. Ask your insurer or employer if the plan is HSA-eligible; plans aren’t always clearly marked, especially on the state exchanges. 

How much can I contribute to an HSA? 

You can contribute up to $3,350 if you have individual coverage or $6,650 if you have family coverage in 2015, plus up to $1,000 if you’re 55 or older anytime during the year. Your contributions are pretax if made through your employer or tax-deductible if you’re on your own, and you can use the money tax-free for medical expenses in any year.

Where can I open a health savings account? 

Many banks and brokerage firms offer health savings accounts, and you can open an account anywhere as long as you have an HSA-eligible health insurance policy. Most employers and insurers have relationships with specific HSA administrators, but you aren’t required to use their plan. 

What can I pay for with HSA money? 

You can use the money tax-free for out-of-pocket medical expenses, such as your deductible, co-payments for medical care and prescription drugs, or bills not covered by insurance, such as vision and dental care. 

Is there a time limit for using it?

There’s no time limit for using the money, and you can even use it tax-free for many medical expenses in retirement. You can re­imburse yourself for the money that Social Security withholds from your benefits to pay Medicare Part B (which will be $104.90 per month for most people in 2015), and you can also make tax-free HSA withdrawals to pay Medicare Part D and Medicare Advantage premiums (but not medigap premiums). You may also make tax-free withdrawals to cover a portion of long-term-care premiums based on your age ($3,800 per year if age 61 to 70, and $4,750 if older than 70 in 2015). 

Can I contribute to an HSA after age 65? 

You can withdraw the HSA money tax-free for medical expenses at any age, but you can no longer contribute to an HSA after you sign up for Medicare. 

What happens if I want to use the money for non-medical expenses?

If you use the money for non-medical expenses before age 65, you’ll have to pay a 20% penalty plus taxes on the withdrawals. The penalty goes away after age 65, but you’ll still have to pay taxes if the withdrawals aren’t for eligible medical expenses.

Source: Kiplinger.com