Health Savings Accounts FAQsA health savings account can be a powerful financial tool to cover medical expenses and save for the future.
As employers search for ways to lower their health care costs, they’re encouraging employees to sign up for a high-deductible health insurance policy paired with a health savings account. An HSA gives you a triple tax break: Your contributions are sheltered from income taxes, the money grows tax-deferred, and the funds can be withdrawn tax-free for medical expenses. It’s like a supercharged flexible spending account that never expires, and it can even serve as an extra retirement-savings fund. Most employers also add a few hundred dollars to the accounts each year as a bonus. Below we answer your questions about how HSAs work and how to make the most of them.
How do I know if I can make Health Savings Account contributions?If your policy has a deductible of at least $1,300 for individual coverage and $2,600 for family coverage in 2015, you may be eligible to contribute to an HSA. But not all high-deductible policies are HSA-eligible. The policy must also make everything subject to the same deductible (other than preventive care, which must be covered by all health plans without any deductible or cost-sharing). Some plans, for example, aren’t eligible because they have a separate deductible for prescription drugs. Ask your insurer or employer if the plan is HSA-eligible; plans aren’t always clearly marked, especially on the state exchanges.
What can I pay for with HSA money?You can use the money tax-free for out-of-pocket medical expenses, such as your deductible, co-payments for medical care and prescription drugs, or bills not covered by insurance, such as vision and dental care.
Is there a time limit for using it?There’s no time limit for using the money, and you can even use it tax-free for many medical expenses in retirement. You can reimburse yourself for the money that Social Security withholds from your benefits to pay Medicare Part B (which will be $104.90 per month for most people in 2015), and you can also make tax-free HSA withdrawals to pay Medicare Part D and Medicare Advantage premiums (but not medigap premiums). You may also make tax-free withdrawals to cover a portion of long-term-care premiums based on your age ($3,800 per year if age 61 to 70, and $4,750 if older than 70 in 2015).
How much can I contribute to an HSA?You can contribute up to $3,350 if you have individual coverage or $6,650 if you have family coverage in 2015, plus up to $1,000 if you’re 55 or older anytime during the year. Your contributions are pretax if made through your employer or tax-deductible if you’re on your own, and you can use the money tax-free for medical expenses in any year.
Where can I open a health savings account?Many banks and brokerage firms offer health savings accounts, and you can open an account anywhere as long as you have an HSA-eligible health insurance policy. Most employers and insurers have relationships with specific HSA administrators, but you aren’t required to use their plan.
Can I contribute to an Health Savings Account (HSA) after age 65?You can withdraw the HSA money tax-free for medical expenses at any age, but you can no longer contribute to an HSA after you sign up for Medicare.
What happens if I want to use the money for non-medical expenses?If you use the money for non-medical expenses before age 65, you’ll have to pay a 20% penalty plus taxes on the withdrawals. The penalty goes away after age 65, but you’ll still have to pay taxes if the withdrawals aren’t for eligible medical expenses.