Since their creation in 2003, Health Savings Accounts (HSAs) and the high-deductible health plans (HDHPs) they are paired with have become increasingly popular. Thanks to tax benefits and lower monthly premiums, individuals, families and employers often find an HDHP/HSA combination a more affordable health care option. Despite their acceptance, HSA accounts are not completely understood.
In order to open an HSA, an individual must have a health plan with an annual deductible of at least $1,300 for 2016. For family plans, the minimum deductible is $2,600. The current maximum annual contribution is $3,350 for individuals and $6,750 for families. Individuals 55 or older can add an extra $1,000 per year.
An HSA allows you to contribute pretax money, let it grow tax-free and withdraw it tax-free to pay for eligible medical expenses. Once your money is deposited in an HSA account, you can invest it in stocks, bonds, mutual funds or certificates of deposit to help it grow.
Unlike many Flex Spending Accounts (FSAs), you can roll money over from year to year. So if you are still earning income, you may want to defer distributions until you retire. If you need money later, you can reimburse yourself from your HSA for medical expenses years after you paid the bills – providing you had the account at the time they were incurred. Remember to save your receipts to verify withdrawals or reimbursements if you are audited. Using a debit card can make record-keeping easier.
HSA funds can be used for certain expenses not covered by every insurance policy, such as dental work, eye glasses, contact lenses, hearing aids, psychological counseling, acupuncture, chiropractic treatments and nursing home care. For a complete list of qualified expenses, see IRS publication 502 at https://www.irs.gov/pub/irs-pdf/p502.pdf.
You can’t fund an HSA and a FSA in the same year. You can’t take a loan from an HSA. You will be required to pay income tax and a 20 percent penalty on any HSA money used for non-medical purposes. If you switch to a lower deductible health plan, you won’t be able to add to your existing HSA, but you will be able to use the funds for qualified medical expenses.
Need help deciding if an HSA is right for you? Give us a call. Contact Jordan Dechtman, your Denver registered investment advisor representative at 303-741-9772, email him at Jordan@JordanDechtman.com or visit our website at www.JordanDechtman.com to schedule an appointment.
Written by Securities America for distribution by Jordan Dechtman.
