The Health Savings Account (HSA) is one of the tax favored plans available designed to offset or help with health care costs. The other tax favored plans are the Medical Savings Accounts, the Flexible Spending Arrangement and the Health Reimbursement Arrangements. We will only address the HSA here. IRS publication 969 explains all of these programs more.
An HSA is a tax-exempt trust or custodial account you set up with a qualified HSA administrator. There are a number of qualified trustees around. Most banks, investment brokers and other institutions can help with this. Usually, most employers can help you also, and may be able to contribute to your account. You should do your research to find out which is most appropriate for you.
An HSA helps you to pay or be reimbursed for qualified medical expenses you incur. There are certain parameters you must meet to qualify for an HSA. You do not need to get any special permission from the IRS to open one. To be eligible for an HSA you must meet the following general requirements.
You have to be covered by a High Deductible Health Plan (HDHP). You have no other health care coverage except as permitted by existing law, or that is not a HDHP. You can have other types of additional coverage like workers compensation, coverage for a specific illness, fixed amount payments to cover injury or hospitalization, accident insurance, disability, dental or vision care, and long-term care.
You cannot make new contributions to an HSA after you enroll in Medicare. But, after you enroll in Medicare you can take distributions from your existing HSA to cover your qualified medical expenses, which can also include reimbursements to yourself for your Medicare premiums that are paid directly out of your Social Security benefits. You have to keep a copy of your Social Security Statement for your records if you do this. You can delay Medicare enrollment when you turn age 65 only if you are covered by a current employer’s health care plan.
HSAs can be opened as a family or an individual plan. Contributions you make to the plan are tax deductible in the year made up to certain limits even if you do not itemize deductions. This deduction is off your gross income. Contributions and the earnings from them remain in your account until you use them. Distributions may be tax free if used to pay qualified medical expenses.
The HSA is portable, which means you take it with you if you leave a job or the workforce. The tax-deductible amount of the contribution has limits, and are usually adjusted yearly. Contributions can only be in cash. For 2018, the limits for an individual plan is $3,450, and for a family plan, it is $6,900. If you are age 55 or older, your limit is increased by $1,000 for each person age 55. These limits apply even if you have more than one HSA in your name, meaning you must aggregate them together. You can make a contribution to your HSA for 2018 until the filing deadline for this tax year, April 15, 2019.
There are more details than can be explained here. The main point is that the HSA and the other programs can be a very good health planning tool with good tax benefits to boot, which should be considered carefully. The time and research you put into finding a good plan can be well worth the effort. QCBN
By Ernie L Gallardo, EA