02/03/2020: What to know about Health Savings Accounts
It’s the time of year when most insurance plans are renewed or updated for the calendar year. This could mean a change in premium, coverage amounts, approved providers and/or deductibles. If you find yourself in a high-deductible health plan, a Health Savings Account (HSA) is a great, tax-advatanged way to help prepare for unexpected (or expected) medical expenses.
An HSA is a great investment. Not only can you deduct your HSA contributions, but you may not have to pay taxes on the money when you spend it. Plus, it’s always your money, not a “use it or lose it” investment.
What are the Advantages of an HSA?
- Helps cover your medical, dental and even vision expenses.
- Your balance is carried over from year to year.
- It’s yours wherever you go.
- Tax deductible
- Tax-deferred earnings.
The rules that define an HSA eligible High Deductible Health Plan can be complicated so check with your insurance provider or employer to see if your health plan is HSA eligible.
Contribution and Out-of-Pocket Limits
for Health Savings Accounts and High-Deductible Health Plans
|HSA contribution limit
(employer + employee)
|HSA catch-up contributions
(age 55 or older)
|HDHP minimum deductibles||Self-Only: $1,400
|HDHP maximum out-of-pocket amounts
(deductibles, co-payments and other amounts, but not premiums)
Source:IS, Revenue Procedure 2019-25
Tax-Deductible HSA Contributions
As you start contributing to your HSA, don’t forget about the tax deduction. As long as you cannot be claimed as a dependent on another person’s tax return, you can deduct your HSA contributions (except those made by your employer if offered).
You can take money out of your HSA without tax or penalty. Simply use the money for qualified medical expenses. This generally includes most medical, dental, and vision care expenses that are incurred by either you, your spouse, or any dependents.
HSA distributions not used for qualified medical expenses are subject to ordinary income tax and if taken before age 65, a 29% IRS penalty tax (unless the distribution is because of death or disability).
Be sure to consult your tax advisor regarding your HSA deductions and how to claim tax-free HSA distributions. (Consult IRS Publication 969 for additional details)
How to get started
If you would like to learn more about Health Savings Accounts, or if you’d like to get started with one, contact Wolf River Community Bank today!