How to use your health savings accountDate posted: 4/19/17 08:15:00 AM
In our last piece about health savings accounts (HSA), we looked at making contributions and the benefits associated with HSAs. Once you have made the appropriate contributions, you'll want to determine what you can use the funds for and whether there are penalties associated with using the funds for alternative purposes outside of medical expenses. Here's our guide to spending your HSA funds:
Which expenses qualify?
The first step to using HSA funds is identifying what you can spend the money on and what you cannot. According to HSA Resources, there are several qualified medical expenses, including:
- Blood tests
- Birth control pills
- Prescription drugs
- Non-cosmetic operations
- Hearing aids
- Doctor's fees not covered by insurance
- Inpatient treatment for drug addiction
There are also some medical expenses that do not qualify. Dental floss, teeth whitening, funeral expenses and Medigap premiums do not qualify for HSA funds. Use a guide, like the one linked above, to determine how you can appropriately use your savings.
What limitations may exist?
Some items may qualify, but have limitations. Familiarize yourself with these and if you find yourself in need of any of these items, ensure you determine what limitations are placed on them.
For example, you may be able to use HSA funds for a humidifier if it is used to treat a specific illness at a physician's recommendation. Should you need to travel, and require lodging, you may be able to use your HSA, but you will need to reference IRS Pub 502 as several limitations apply. Some requirements include:
- Lodging must be primarily for and essential to medical care
- Lodging is not lavish under the circumstances
- No significant level of recreation or vacation in travel while away from home
- Medical care is provided by a doctor in a hospital or medical care facility
- Cost cannot exceed $50 each night for each person
What if I need to use the money for something else?
If you are under 65 years of age, you will need to pay a 20% penalty, noted Kiplinger. In addition, you'll need to pay taxes on the withdrawals. Once you turn 65, you can withdraw the money without the penalty. However, the amount will still be taxable.
How can I use my HSA for retirement?
With HSAs, you have a triple tax advantage when used correctly. One of the most unpredictable and significant costs after retirement is health care. HSAs can be incredibly helpful. Any medical costs incurred can be paid using funds from the account without owing taxes on those withdrawals, making HSAs an ideal tool to pack away for future retirement.
HSAs are a great way to balance and manage qualifying health care expenses. Whether you are just starting your professional career, or approaching retirement, know how you can take appropriate advantage of this type of savings account to optimize its value.
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