HSA High-Deductible Health Plans?

Susan A. McCants Wealth Planning

Utilizing a health savings account can be a smart way to pay for current or future healthcare expenses, or even another way to save for retirement. If you own a high-deductible health insurance plan, you may have the option of opening a health savings account (HSA). Health savings accounts are tax deferred, so your earnings’ growth will be tax-free. Your contributions are sheltered from income taxes and so your withdrawals for qualified health care expenses are also tax-free. HSA benefits not only provide a way to lower overall costs for medical expenses, but also provide a non-traditional tax-free retirement savings opportunity. Managing an HSA is easy as long as you adhere to the contribution and withdrawal guidelines.

If you are covered by a high deductible health plan and are not receiving Medicare, you are eligible to contribute to a health savings account. HSA contributions can be made by you and/or by your employer. Employer contributions reduce your taxable income; personal contributions are tax deductible. There are limits on the amount you can contribute to your HSA each year: in 2015, the maximum contribution with individual health coverage is $3,350 (with $6,650 allowed if you have family coverage). Individuals who are 55 or older may contribute an additional $1,000 as a “catch-up” contribution. Contributions that are not used for medical expenses can be invested and accessed in the future for health care expenses—making health savings accounts a great way to save for emergencies.

Withdrawals from health savings accounts are exempt from income taxes as long as the withdrawals are used to pay qualified medical expenses. Qualified expenses include medical deductible and co-payments, prescription drugs, dental visits, orthodontics, glasses, long-term care insurance premiums, and the cost of COBRA coverage. You can also re­imburse yourself for your Medicare Part B and Part D expenses. (Note that if you are under age 65, there is a 10% penalty on the amount withdrawn for non-qualified expenses.)

If you pay for qualified medical expenses with non-HSA funds while you are covered under an HSA plan, you can reimburse yourself at any time. (You have to keep records of all qualified expenses in order to document your current and potential future withdrawals.) Once you reach 65, your withdrawals are no longer subject to penalty. You can withdraw funds from your HSA and only pay income tax on nonqualified withdrawals—making an HSA an effective way to save for retirement.
You own and control the money in your health savings account. The accounts are portable and remain with you even if you change medical plans, change employers, or retire. As an HSA account holder, you can designate beneficiaries for your account so that upon your death, any money left in your account becomes the property of your beneficiary. If your spouse inherits your HSA, it remains an HSA and retains its tax-deferred status. If someone other than your spouse inherits, then the account is no longer an HSA and the fair market value of the account becomes taxable for your beneficiary.

Health savings accounts provide a smart, flexible way to save. The funds can be used as needed for medical expenses or the account balance can be allowed to grow tax-free and/or used as a retirement fund. As more people are signing up for high deductible health insurance policies, more individuals will be able to benefit from the many advantages of health savings accounts.

You still have until April 15, 2015, to make HSA contributions for the 2014 tax year. For more information on health savings accounts go to

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