Now is the time of the year when there’s a ton of buzz around HSA accounts. People are either trying to use up their HSA or considering enrolling. A Health Savings Account (HSA) is a tax-advantaged account that allows individuals with high-deductible health plans to save money for qualified medical expenses. It’s often offered through your employer.
Here are a 8 tips on using an HSA account:
Contribute to Your HSA:
- You can contribute money to your HSA up to the annual contribution limit set by the IRS. Contribution limits can change annually. Be aware of the limits to ensure you don’t exceed them, as doing so may result in tax penalties.
Keep Records of Qualified Expenses:
- It’s crucial to maintain records of your qualified medical expenses. This includes receipts, bills, and other documentation. This will be important when reporting withdrawals from your HSA and for tax purposes.
Understand Qualified Medical Expenses:
- The IRS defines what expenses are considered qualified. Generally, these include doctor visits, prescription medications, certain medical procedures, and other health-related costs. Non-qualified expenses may be subject to taxes and penalties.
Invest HSA Funds (if applicable):
- Some HSA providers allow you to invest your HSA funds in stocks, bonds, or mutual funds once your account reaches a certain balance. This can potentially grow your HSA savings over time.
Roll Over Unused Funds:
- Unlike Flexible Spending Accounts (FSAs), HSAs have no “use it or lose it” rule. Any unused funds at the end of the year roll over to the next year, allowing you to accumulate savings for future medical expenses.
- Contributions to your HSA are tax-deductible, and withdrawals for qualified medical expenses are tax-free. This provides a triple tax advantage: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified expenses.
- After the age of 65, you can withdraw funds from your HSA for non-medical expenses without incurring the usual 20% penalty. However, these non-medical withdrawals are subject to income tax.
Take Advantage of Employer Contributions:
- If your employer offers to contribute to your HSA, take full advantage of this benefit. Employer contributions can help boost your HSA balance and cover a larger portion of your healthcare expenses.
An Health Savings Account is a great opporunity to utilize your income. While we hope you find these tips helpful, they may not pertain to each individual the same. Always consult with a tax professional or financial advisor to ensure you are following the current tax laws and regulations regarding HSAs.