Medical expenses – even if you have health insurance – can be steep. However, if your policy has a high deductible, you may be able to use a Health Savings Account (HSA) to pay for some very common (and often pricey) out-of-pocket medical expenses at a tax advantage. And with Open Enrollment right around the corner, now is the ideal time to review your current HSA and look for options that may better fit your needs.
Why Have An HSA
Health Savings Accounts allow you to save for certain medical expenses not covered by insurance with pre-tax dollars. Contributions to these accounts reduce your taxable income, and withdrawals and investment earnings are tax-free as long as you use the money for qualified healthcare costs. Plus, you can deduct your HSA contributions on your income taxes, whether you itemize or take the standard deduction.
HSAs are only compatible with high-deductible health insurance plans. A deductible is the amount of money you are responsible for before your insurance coverage begins to pay out. The upside to high-deductible health insurance plans is the affordable premiums. The downside is that you could be out thousands of dollars before your insurance company pays a penny. HSAs were developed to bridge this gap. Because of all the tax advantages, they can greatly reduce the amount you have to pay for those uncovered medical costs.
Who Can Open An HSA?
In order to be eligible for an HSA, you must meet certain conditions:
- You are covered under a high-deductible health plan (HDHP) on the first day of the month. Read more about these types of plans here.
- You have no other health coverage except what is permitted under “Other health coverage” as defined here.
- You aren’t enrolled in Medicare.
- You can’t be claimed as a dependent on someone else’s tax return.
How To Set Up An Account
If you buy the insurance policy on your own, you can sign up for an HSA at banks, credit unions, and insurance companies. Your insurance agent should also be able to help guide you to policies that qualify for HSAs. Our friendly branch counselors will gladly help you set up an HSA. Or you can open an HSA through the Credit Union online. Plus, for a limited time, we will reimburse our Credit Union Members for fees related to transferring your HSA from another institution to the Credit Union.
Many people have group health insurance coverage through their employer. If that policy qualifies as high-deductible, you can sign up for an HSA during your open enrollment period. Depending on your company’s policy, your employer may fund all or a portion of the HSA, or they may match contributions.
What Are Qualified Medical Expenses?
You can withdraw the money you deposit in an HSA to pay for such routine healthcare costs as:
- Dental care
- Maternity expenses
- Long-term care insurance premiums
- Mental healthcare
- Physical therapy
- Alternative healthcare (including acupuncture, homeopathy, traditional Chinese medicine, and nutritional consulting)
- Ambulance fees
- Preventative healthcare (including blood tests, vaccines, and lab tests)
- Prescription drugs
- Special needs health care (including wheelchairs, guide dogs, and special classes)
Be Aware Of The Restrictions
HSAs have maximum annual contribution limits. While there is no “use it or lose it” rule (any money you don’t spend rolls over for the next year), there are spending limits. Each year, these restrictions change, so check with the IRS for account limit information. Log on to www.irs.gov, or call their toll-free hotline: 1-800-829-1040.
Also, be aware that if you use the money for non-medical expenses before age 65, you will be charged a 10 percent early withdrawal penalty and have to pay income taxes on the amount you take out.
If you have a high-deductible health insurance policy through work, talk with your human resources department to learn how (and when) you can sign up. If you obtain the policy on your own, contact your financial institution or insurance agent. You will need to decide how much money you want to contribute and if you want to use the plan to pay for current medical costs or if you’d rather invest for future expenses.
Make A Healthy Financial Decision
HSAs make good financial sense and are a smart way to help pay for qualified medical, dental, and vision care. But, like all healthy habits, you have to make the first move. We offer an HSA that earns an impressive 2.50 APY*. There are no fees or minimum balance, we gladly accept rollover funds, and it comes with powerful tax advantages. Remember, we will reimburse Credit Union member for fees related to transferring your HSA from another institution to the Credit Union, but this offer is only available for a limited time. Visit your local branch or call us at 800.877.2345 to get started.
*APY = Annual Percentage Yield. Yields are subject to change at any time. Fees could reduce the earnings on an account. Fee reimbursement promotion offered is subject to change and termination.
Consult your tax advisor or refer to IRS Publication 502. Contribution limitations and other restrictions apply to HSAs. To have a Federally Qualified HSA, you must purchase and maintain a HDHP with minimum deductibles of $1,300 (individual) and $2,600 (family), and maximum out of pocket expenses less than $6,850 (individual) and $13,700 (family). Generally you cannot be covered by another low-deductible health insurance policy. The tax treatment of HSA contributions and distributions under your state’s income tax laws may differ from the referenced federal tax treatment, and from state to state. Consult with your financial or tax advisor for more information. This Credit Union is federally-insured by the National Credit Union Administration. Refer to section 213 (d) of the IRS Tax Code. Visit the U.S. Department of Treasury website for up-to-date contribution limits and more detailed information on plans and taxes.