What are HSAs?
If you chose an insurance with your employer that had low monthly payments and a high deductible, chances are you are eligible or already even have an HSA. HSAs were created in 2003 so that individuals covered by high-deductible health plans could receive tax-preferred treatment of money saved for medical expenses. Generally, an adult who is covered by a high-deductible health plan (HDHP) may establish a HSA.
HSAs are great because you get to save on taxes for your medical care
Why should you use HSAs?
The biggest reason is that there are BIG tax benefits: 1. Any contribution you make to a HSA is deductible from your federal and state taxes (up to the contribution limit), and 2. Even if you don’t use all of your annual contribution, those dollars can stay in the account and fund future health care expenses. Many HSAs even have an investment component where you can invest a portion of your account in mutual funds, which means your account can grow even larger years from now. Oh, and once you are 65, you can take withdrawals from a HSA without penalty for non-health related expenses. Note: You’ll still owe ordinary income taxes on these withdrawals.
HSAs have lots of usage options
So, we’ve convinced you to consider a HSA. What exactly can you pay for with your HSA account? There are many items that you can pay for with your HSA account, but examples include:
- Medical expenses that are not covered by your health insurance, but are applied to your annual deductible.
- COBRA premiums (Note: Health insurance premiums are generally not a qualified expense, but COBRA is an exception).
- Dental and orthodontic work
- Contacts, glasses
Ok, but I’m now retired and on Medicare and a Supplemental plan. Almost all of my health care expenses are covered. What will I ever use my HSA balance for? We’ve got you covered:
- Dental Treatment (think crowns, implants, etc)
- Hearing Aids
- Contact Lenses and glasses
- Medicare Part B and D premiums – NOT Medicare Supplemental Insurance
- Qualified Long-Term Care Services
- Medicine that requires a prescription
That’s a lot of options!