What is an HSA?
What is an HSA? A Health Savings Account (HSA) is a tax-advantaged financial account paired with a qualified high-deductible health plan (HDHP). An HSA may be used to pay for qualified medical expenses tax-free, and to save for the future.
Contributions are 100% tax deductible up to the annual limit, just like an IRA, so consider contributing the maximum amount:
Individual: $3,600 per year
Family: $7,200 per year
Over 55: +$1,000 per year
Individual: $3,650 per year
Family: $7,300 per year
Over 55: +$1,000 year
Account accumulates interest over the years tax deferred, allowing you to decide when to spend and when to save. Withdrawals are tax free as long as they are used for qualified medical expenses, even in retirement.
The deadline to make contributions to an HSA for a tax year is typically April 15 (Tax Day) of the following year unless it falls on a weekend or holiday. Tax Day is the day on which individual income tax returns are due to be submitted to the federal government. The federal government may set a different deadline for certain states so make sure to verify with your tax professional to be certain.
USING YOUR HSA ACCOUNT
Money in this account can help pay:
- Insurance deductibles
- Out of pocket expenses
- Qualified medical expenses
Any money left in the savings account earns interest and is yours to keep year over year, unlike a Flexible Spending Account (FSA), there is no ‘use it or lose it.’
If you pay for anything other than qualified expenses with your HSA, the amount will be taxable. If you are 64 or younger, you will also pay an additional 20% tax penalty. If you are 65 or older, the tax penalty does not apply, but the amount must be reported as taxable income.
Keep in mind, total combined employer and employee contributions to an employee’s HSA can’t exceed the annual limit set by the IRS. Contact your new accounts representative for full details.
To learn more about Health Savings Accounts, visit the IRS website at: https://www.irs.gov/government-entities/federal-state-local-governments/where-can-i-learn-more-about-health-savings-accounts-hsa-and-health-reimbursement-arrangements-hra
Please consult your tax professional for more information. Tax professionals can advise you now and all year round on the best strategies to make smart tax-saving decisions.