Health Savings Account (HSA) owners – there may be some upsides to your tax-advantaged healthcare benefit account you aren’t aware of. Most people have heard of the triple tax savings: tax-free contributions, tax-free earnings, and tax-free withdrawals for qualified healthcare expenses. Though HSAs are designed primarily to reduce healthcare costs, the accounts have ‘hidden gem’ value as well.
Here’s a list of lesser known HSA benefits that can help you get more out of your tax-advantaged dollars.
HSA Benefits
Portability: Your HSA Is Yours Forever
With an HSA, the money is yours to keep and use for the life of the account.
There is no “use it or lose it” at the end of the year. If you’re no longer enrolled in a high deductible health plan (HDHP), you keep the HSA funds. If your employment status changes, you keep the funds.
No matter what, you can continue to use those dollars on qualified healthcare expenses, or hold onto the account and use it in retirement.
This is significantly different than a Flexible Spending Account (FSA) or Health Reimbursement Arrangement (HRA). With either of those accounts, if you leave your job for any reason, the FSA and HRA funds stay behind with the employer.
Change Health Insurance Coverage? Your HSA Money Is Still Available
As mentioned above, if your insurance coverage changes and you’re no longer in a qualified HDHP, you can keep using the money in the account. If you enroll in a different insurance plan or have a lapse in insurance, that’s also okay. Your HSA is still available to use for qualified expenses for yourself and your dependents.
One very important thing to keep in mind is that you can only contribute to the HSA while you’re enrolled in an HDHP.
Get Reimbursed At Any Time
Did you know that you can submit a claim for reimbursement ANY time after you establish your HSA? There are no time limitations.
This is especially important because you can only use the available balance in the account. So, if necessary, you can pay out-of-pocket up front and file for reimbursement later.
Consider this example: you established your HSA on January 1, 2018, and the next day you had to cover a qualified expense. You can file today (or next year or years later) with a dated and itemized receipt. You could not, however, receive reimbursement for an expense from 2017, because the HSA had not yet been opened.
Some HSA owners pay out-of-pocket for years and save their receipts to file at a later date. By deferring reimbursement, the HSA grows tax-free, thereby stretching the tax benefits.
You Have Funding Options
Believe it or not, you have multiple funding options as long as you’re enrolled in an HDHP.
First, anyone can contribute to your HSA account. That includes yourself, a spouse, employer, parent, or other person.
Other funding options include transferring or rolling over money from an HSA that you had with a different administrator. Or, if you have an IRA, you could make a one-time transfer from the retirement account to your HSA.
Another thing to note is that you can change your contribution limits at any time during the plan year, whether you want to contribute more (up to the annual limit) or need to cut back.
You Can Make Catch Up Contributions After Age 55
The IRS sets annual contribution limits every year for self-only coverage and family coverage. Plus, after account owners reach age 55, they can make ‘catch-up’ contributions up to $1,000 over the annual limit. This extra allowable contribution can help defray medical costs or build up the account for to supplement retirement in the future.
Learn more about 2020 and 2021 HSA contribution limits.
No Tax Penalties After Age 65
So you’ve reached age 65 and have an active balance in your HSA. Great! People over age 65 can use their HSA as a supplemental retirement account – without penalty.
If you’re under age 65, you’ll be penalized 20 percent for withdrawals for non-eligible expenses; this is in addition to the money being treated as regular income. After age 65, however, withdrawals are only taxed as income. If the HSA is used for qualified medical expenses, then those distributions are still tax-free.
This list addresses just a handful of “lesser known” HSA benefits which can help you make the most of your tax-advantaged benefit account. Contact us today for more information on the benefits of an HSA.