An HSA is a specific type of savings account that anyone can open in just a few simple steps. Both individuals as well as families can open an HSA. The differences between an individual-coverage and a family-coverage Health Savings Account have to do with maximum annual contribution amounts to the account and out-of-pocket healthcare expense limits.
Like an IRA, the money that consumers set aside in their Health Savings Accounts can be invested in high-interest CDs, money markets, bonds, stocks, and more. However, contributions that consumers make to their Health Savings Accounts are tax deductible.
To be eligible for an HSA, you must be enrolled in an HDHP, and cannot be covered by any other medical plan that is not an HDHP, with certain exceptions. Additionally, you cannot be enrolled in Medicare or be a dependent on someone else’s tax return. If you have questions about your eligibility, please contact your tax advisor.
Eligible individuals, such as your spouse, dependents, and your employer, can contribute to your HSA.
Your HSA can be used to pay for covered expenses that apply toward your high deductible health plan (HDHP) annual deductible. In addition, you can pay for qualified medical expenses that your health plan might not cover, such as vision care (eyeglasses and contact lenses), dental and orthodontic services, and even long-term care insurance.
Remember, you must comply with HSA spending regulations. You can find detailed information about qualified medical expenses in Section 213(d) of the Internal Revenue Code and IRS Publication 502.
Can I use my HSA to pay for non-health-related expenses?
Yes. You may withdraw money from your HSA for items other than qualified health expenses, but the amount you withdraw will be subject to income tax and an additional 20% tax penalty will be applicable.
HSA participants should keep in mind that the funds they spend on healthcare expenses are tax-free. However, they can withdraw funds from their Health Savings Accounts at any time to use for other expenses. When they withdraw money to use for other expenses, the withdraw is tax-deferred, which means that they will only pay taxes on the money once they withdraw it, but will not need to pay taxes on the growth within the account.
Opening an HSA is a wise choice for many individuals and families who are looking for ways to be financially savvy and save up to 50 percent in healthcare expenses each year. Opening a Health Savings Account is easy and simply requires participants to enroll in a qualifying high deductible insurance plan. By getting started today, HSA participants can start to save money, reduce their tax burdens, and grow their wealth in effective way.