All contributions to an HSA are income tax-free. And, any interest earnings and investment growth from deposits are income tax-free.
Why Max Out Your HSA? The tax benefits are so good that some financial planners say to max out your HSA before contributing to an IRA. Here's why: ... You don't pay any taxes upon withdrawal as long as you use the money to pay qualified medical expenses or qualified health insurance premiums if you're over the age of 65.
Once you reach age 65 you may use your HSA funds for non-qualified medical expenses without penalty — just pay ordinary income tax. When funds are transferred to your investment account, the amount of the transfer cannot bring the balance of your HSA below your investment threshold.
Investing your HSA funds can be a great way to save for the future. But it's generally only a good option if you're not consistently dipping into the account to cover current medical expenses.
Can I withdraw the funds from my HSA at any time? Yes, you can withdraw funds from your HSA at any time. But please keep in mind that if you use your HSA funds for any reason other than to pay for a qualified medical expense, those funds will be taxed as ordinary income, and the IRS will impose a 20% penalty.
Under IRS rules, that leaves you liable to pay six months' of tax penalties on your HSA. To avoid the penalties, you need to stop contributing to your account six months before you apply for Social Security retirement benefits.
Your Maximum Contribution
As of 2017, you can contribute a maximum of $3,400 to an individual HSA or $6,750 to an HSA for your family, according to the IRS. If you're 55 or older, you get to contribute another $1,000 on top of that. It's important to note that there can't be joint owners on an HSA.
Sometimes, a massage is much more than a therapy for stress relief. ... In a case like this, accountholders can use their HSA to pay for the massage. For you to use your HSA to pay for the massage, you must provide a letter of medical necessity from your doctor that therapeutic message is really needed.
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.
Bottom line—if you leave your job or if your employment status changes, your HSA and all the funds within the account remain with you indefinitely.
2021 HSA contribution limits have been announced
An individual with coverage under a qualifying high-deductible health plan (deductible not less than $1,400) can contribute up to $3,600 — up $50 from 2020 — for the year to their HSA. The maximum out-of-pocket has been capped at $7,000.
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