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There are numerous ways to save for healthcare costs, and a health savings account (HSA) provides multiple benefits for eligible individuals.
Contact Prairieland Insurance Group today to find out whether an HSA may be appropriate for your situation.
What Is a Health Savings Account (HSA)?
An HSA is an account that allows eligible individuals to set aside a certain amount of pretax money to help pay for copayments, coinsurance, deductibles and other medical expenses. In general, you can’t use HSA funds to pay for healthcare premiums.
HSA funds can be used to cover specific out-of-pocket medical, vision and dental costs as determined by the IRS, including the following:
This list is not exhaustive. Consult IRS Publication 502 Medical and Dental Expenses for a full list of HSA-eligible medical expenses.
Who Is an HSA For?
Before you can open and contribute to an HSA, you must have a high-deductible health plan (HDHP). These plans generally cover only preventive medical services before you meet the plan’s annual deductible. HDHPs must have a minimum deductible that meets IRS requirements, which may change each year.
While you can’t have an HSA and a flexible spending account (FSA) simultaneously, you may be able to use a limited FSA at the same time as an HSA.
What Are the Benefits of an HSA?
HSAs have several benefits, including tax savings, the ability to roll funds over to the next year and the ability to save and invest HSA funds for future medical costs.
HSA Tax Benefits
HSAs may help save money on taxes in three ways:
- Eye exam fees
- Chiropractic care
- Disabled dependent care expenses
- Dental treatments
- Oxygen and oxygen equipment
- Stop-smoking programs
- Vision correction surgery
Consult your financial planner or accountant to understand how the potential tax benefits associated with HSAs may work in your situation.
HSA Benefits for People Over Age 65
HSA owners over the age of 65 can withdraw funds from their account for any reason without having to pay a 20% early withdrawal penalty. The account owner must pay income tax on the withdrawal if the funds are used for something other than eligible medical expenses.
Unlike some retirement accounts, there are no required minimum distributions (RMDs) from HSA accounts. Many retirement accounts, including 401(k) plans, 403(b) plans, traditional IRAs, SEPs and SIMPLE IRAs require account owners to withdraw and pay federal taxes on a certain percentage of the account after age 72.
- Contributions are tax-deductible. The money you put into an HSA account can be deducted from your total gross income to help reduce the amount of money you pay in federal taxes.
- Earnings on your HSA are tax-free. Depending on which financial institution you choose, you may be able to invest your HSA funds in stocks, bonds, mutual funds and ETFs. Any money your investments earn is available for you to spend on qualified medical expenses without paying taxes on withdrawals.
- Withdrawals are tax-free if you use the money for eligible medical expenses. However, if you take money out of your HSA for anything other than a qualified medical expense, you’ll pay a 20% penalty plus income tax on the withdrawal.
Contact Prairieland Insurance Group in Champaign, Rantoul and Newman, Illinois, to learn more about the advantages of opening a health savings account.