HSAs are designed to help you pay for your current healthcare expenses and save for future healthcare expenses in a tax-advantaged manner. ... With an HSA you can make tax-deductible contributions, invest the contributions and earn interest tax-free, and take tax-free withdrawals to pay for qualified medical expenses.
If you're generally healthy and you want to save for future health care expenses, an HSA may be an attractive choice. Or if you're near retirement, an HSA may make sense because the money can be used to offset the costs of medical care after retirement.
There are also some serious drawbacks. Here's one: If you use your HSA savings for non-qualified expenses before age 65, “you'll owe an additional 20% penalty in addition to any taxes due,” Ulreich said. Generally, qualified expenses for HSAs are the same as those for claiming the medical expense deduction.
A health savings account (HSA) can help you lower your taxes, pay for health care more easily and even save for retirement. HSAs are only available with high-deductible health plans. You can use HSA funds to pay for eligible health care expenses and for out-of-pocket costs your health plan doesn't cover.
You'll Pay a Penalty for Non-Qualified Medical Expenses
Because this account is intended to be used for medical expenses only, if you take money out of an HSA for non-medical reasons, you will have to pay taxes on it.
Beneficiary (not a spouse) transfer: The HSA ends on the date of the individual's death. The funds are then distributed and taxed as income to the beneficiary at fair market value. However, the beneficiary can use the HSA funds to pay for medical expenses of the account holder for up to 12-months after their death.
An HSA is a plan allowing you to save for medical expenses while reducing your taxable income. One of the best advantages of an HSA, besides being pre-tax, is that it can eventually be used as a future investment. The money in the HSA is not taxed when it's deposited, similar to a traditional 401k deduction.
As long as you have an HSA-eligible health plan, there's no limit on how many HSAs you can have. As far as the IRS is concerned, the only limit is how much money you can contribute to your HSAs each year. You can contribute it all to one HSA, or spread it out across two or more accounts.
Among their many advantages, HSAs: Permit others to contribute to your HSA Allow pre-tax and tax-deductible contributions Allow tax-free withdrawals Let funds roll over to the next year Offer portability if you change plans or retire Their disadvantages include: High deductibles Money can only be used for qualified ...
Some of the biggest benefits from HSAs come from not spending the money and allowing it to compound and continue growing over time. It can double as an extra retirement account. ... That makes them a great option for families who have already maxed out traditional retirement accounts such as a 401(k).
In general, you can use your HSA to pay for any qualified medical expense. Qualified medical expenses are defined by the IRS and include medical care, vision and dental care expenses, prescription drugs, and payments for long term care services and insurance.
If you have medical bills right now that you can't cover from your checking account (or by tapping a portion of your emergency savings), it is wise to use your HSA today to pay your outstanding medical bills. Withdrawals for qualified medical expenses will be tax-free if you use your HSA to pay those bills.
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