The ABCs of HSAs
Health savings accounts (HSAs) have been available since 2004, but they’ve become more popular recently. HSAs offer income-tax advantages that can make them an attractive way to save for out-of-pocket medical expenses.
HSAs allow you to make tax-deductible (or pretax) contributions to a tax-deferred account to pay medical expenses for you and your spouse and dependent — but only if your health insurance is a qualifying high-deductible health plan (HDHP). If your employer doesn’t offer an HSA, you can open one yourself, provided you have an HDHP and don’t have other prohibited coverage.
To qualify as an HDHP in 2015, a plan must have an annual deductible of at least $1,300 for self-only coverage or $2,600 for family coverage.* Out-of-pocket payments under the plan can’t exceed $6,450 (self-only) or $12,900 (family).
With self-only coverage under an HDHP, you can contribute up to $3,350 to an HSA for 2015. The HSA contribution limit is $6,650 with family coverage.** Once you’re age 55 or older, you can make additional catch-up contributions of up to $1,000 a year. However, you cannot contribute to an HSA once you are enrolled in Medicare.
NO TIME LIMIT
As long as you use the money to pay qualified medical expenses, no tax is due. However, funds used for nonqualified medical expenses are taxable and are generally subject to an additional 20% penalty before age 65. You’re not required to spend down your HSA; you can allow funds to accumulate.
While most health insurance premiums are not qualified medical expenses, you can use HSA funds to pay qualified long-term care insurance premiums and, as long as you’re age 65 or older, Medicare premiums (except premiums for a Medicare supplemental policy, such as Medigap).