Health Savings Accounts
No doubt about it, medical expenses – even if you have health insurance coverage – can be steep. However, if your policy has a high deductible, you may be able to use a Health Savings Account to pay for some very common (and often pricy) out-of-pocket medical expenses at a tax advantage.
Why have an HSA?
Health Savings Accounts (HSAs) are vehicles that allow you to save for certain medical expenses that aren’t covered by insurance with pre-tax dollars.
Contributions to these accounts not only reduce your taxable income, but withdrawals and investment earnings are tax-free as long as you use the money for qualified healthcare costs. Even better, you can deduct your HSA contributions on your income taxes, whether you itemize or take the standard deduction.
Who can open an HSA?
In order to be eligible for an HSA, you must meet certain conditions:
- Your health insurance policy has a deductible of at least $1,300 for individuals or $2,600 for families
- You are under age 65 and not enrolled in Medicare
- You are not covered by another health insurance policy that isn't a qualified high-deductible plan
- You can’t be claimed as a dependent on someone else’s tax return
What are qualified medical expenses?
Withdraw the money you deposit in an HSA to pay for such routine health care costs as:
- Dental care
- Maternity expenses
- Long-term care insurance premiums
- Mental healthcare
- Physical therapy
- Alternative healthcare (including acupuncture, homeopathy, traditional Chinese medicine, and nutritional consulting)
- Ambulance fees
- Preventative healthcare (including blood tests, vaccines, and lab tests)
- Nonprescription drugs
- Special needs health care (including wheelchairs, guide dogs, and special classes)
HSAs have maximum annual contribution limits. While there is no “use it or lose it” rule (any money you don’t spend simply rolls over for the next year), there are spending limits. Each year these restrictions change, so check with the IRS for account limit information: log on to www.irs.gov, or call their toll-free hotline: 1-800-829-1040.
Also, be aware that if you use the money for non-medical expenses before the age of 65, you will be charged a 10 percent early withdrawal penalty, and will have to pay income taxes on the amount you take out. HSAs make good financial sense. Just decide how much money you want contribute and contact us to set up your HSA at Global Credit Union.