Health Savings Accounts (HSAs) can be a powerful tool for saving money on healthcare expenses, offering triple tax advantages: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. However, there are important rules to consider:
High-Deductible Health Plan (HDHP) Requirement: To contribute to an HSA, you must be enrolled in a qualifying High-Deductible Health Plan.
No Medicare: Once you're enrolled in Medicare, you can no longer contribute to an HSA. However, you can still use the funds in your HSA to pay for qualified medical expenses.
Contribution Limits: As of my knowledge cutoff in 2021, individuals can contribute up to $3,600 per year, and families can contribute up to $7,200. Those over 55 can contribute an additional $1,000 annually.
Qualified Medical Expenses: HSA funds can be used tax-free for a wide range of medical expenses. This not only includes deductibles, copayments, and coinsurance, but also dental services, vision care, and more.
Non-Qualified Withdrawals: If you use your HSA funds for non-qualified expenses before age 65, you'll pay taxes and a 20% penalty. After age 65, non-qualified withdrawals will be taxed, but the penalty is waived.
Ownership and Portability: HSAs are owned by the individual, not the employer. That means if you change jobs, the HSA goes with you.
Investment Options: Many HSA providers allow you to invest your HSA funds, much like a retirement account. This can offer significant potential for tax-free growth over time.
Remember, HSA rules can change, and there may have been updates or adjustments to these rules after my last training data in September 2021. Always check the latest IRS guidelines or consult with a tax professional to get the most current information.