Health Savings Accounts (HSAs) can be a great way to reduce your tax bill if you are enrolled in a high deductible health plan (HDHP). Funds contributed to an HSA are 100% tax deductible (up to the legal limit) just like an IRA even if you don’t itemize your medical expense on your tax return.
Contributions remain in your account until you use them and any earnings are tax-deferred, and if used to pay qualified medical expenses, are tax-free. An HSA is portable and stays with you if you change employers, and contributions made by an employer may be excluded from your gross income.
Withdrawals to pay qualified medical expenses, including dental and vision, are never taxed but you can only withdraw funds to pay for a current medical expense that qualifies, not any future expenses you might have. The term qualified expense also means you cannot get reimbursed from the account for expenses incurred before you set the account up. You can use HSA funds to pay qualified expenses for yourself, your spouse, all dependents you claim on your tax return and certain other persons you may have claimed as a dependent.
Most medical, dental and vision expenses qualify but some specifically do not. The expenses you cannot pay with an HSA include child care, cosmetic surgery, health club dues, nonprescription drugs, and veterinary fees. Qualified expenses are those that generally would also qualify for the medical and dental deduction on your taxes. Visit IRA publication 502 for specifics or consult with your tax advisor.
You qualify* for an HSA account if:
- You are covered under a high deductible health plan with a minimum individual deductible of $1350 or $2700 for family deductible;
- You have no other health coverage;
- You are not enrolled in Medicare
- You can’t be claimed as a dependent on someone else’s tax return.
To determine if an HSA is right for you, contact your personal investment or tax advisor. Once you decide to open an HSA, contact our team and we will get you set up to start saving.