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Health Savings Account Plans

Take Control of Your Health Care Expenses with an HSA

Paired with an eligible health insurance plan, a Health Savings Account (HSA) is a tax-advantaged savings account that allows you to pay for qualified medical expenses tax-free. HSA's increase your health insurance buying power four-fold:

  • HSA savings grow tax deferred – You can use them for qualified health care expenses or for retirement after age 65.
  • HSA savings are never taxed – When used for qualified medical expenses, your HSA savings are not taxed.
  • Lower your taxable income – Deposits to an HSA, within legal limits, are deductible off of federal gross income.
  • Lower your premiums – Health insurance plans with an HSA often cost less than many other plans.

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What Are HSA Qualified Medical Expenses?

The IRS determines what medical expenses are qualified for tax purposes. These can change at any time. But generally, services or items purchased to help ease or prevent a physical or mental defect or illness constitute a “qualified” medical expense.

IRS publication 502 provides a comprehensive list of all current qualified expenses. But, please always consult your tax advisor should you require specific tax advice.

You should know that if you withdraw funds for non-qualified health care costs, they will be taxed at your income tax rate. Plus, you’ll incur a 20% tax penalty if you’re less than 65 years old.

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Questions About HSAs?

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HSA Qualified Expense

 Examples of qualified medical expenses:

  • Vision care – exams, glasses, Lasik eye surgery
  • Dental care – cleanings, braces, fillings
  • Prescription drugs
  • Long-term care expenses, including long-term care insurance premiums
  • Health insurance deductibles, copays, coinsurance
  • Mental health care (there are some exceptions)
  • Transportation that is related to medical care
HSA Non-Qualified Expense

 Examples of medical expenses that are NOT qualified:

  • Health insurance premiums, except when receiving federal or state unemployment benefits
  • Cosmetic plastic surgery
  • Health club dues
  • Hair transplant
  • Teeth whitening

Keep These Points in Mind About HSAs

  • Insurance plans that can be used with a Health Savings Account (HSA) must meet certain deductible ranges and out-of-pocket maximums set annually by federal law.
  • Keep a copy of all HSA qualified medical expense receipts for tax purposes.
  • Some HSAs charge a small monthly maintenance fee.
  • Always consult with your tax advisor for details on the federal and state tax issues that apply to you.

Frequently Asked Questions

How do Health Savings Accounts work? 

In order to use your Health Savings Account funds tax-free, you must first establish an HSA account before you incur qualified medical expenses. Otherwise, the expenses will not qualify for tax purposes.

How much can I contribute to my HSA?

The maximum yearly contributions (and their associated tax deductions) are determined each year by the IRS. If you are 55 or over, you can add an extra $1,000 per year in catch-up contributions to an HSA if you want.

Unless certain circumstances exist, there is no minimum contribution required to open an HSA, and you do not have to contribute the maximum each year. But regular contributions will help you save more for medical expenses and maximize the tax benefits HSA plans offer.

How do I get my HSA tax savings?

Enjoying the tax advantages of an HSA is easy:

  • You will be sent a 5498 tax document showing the amount you contributed to your HSA for each tax year. Your statement will arrive after April 15th of the following year. You can deduct this amount, provided it is less than or equal to the maximum allowable contribution.
  • Account holders, employers and many others can make contributions outside the plan structure which can result in tax deductions and a reduction in your adjusted gross income before any itemized or standard deductions are considered.