We are proponents of Health Savings Accounts (HSAs) and have continued to discuss their benefits over time. HSAs can be a great way to manage healthcare costs, gain a tax deduction, and save future dollars. These tax-free accounts can also help fund long-term care (LTC). Expenses related to LTC services should be reviewed by a tax professional to determine what is HSA eligible. Here are a few guidelines to follow:
1. HSA funds can be used to pay LTC insurance premiums but the amount you can withdraw tax-free depends on your age. For instance, if you’re 40 years old or younger, the maximum premium payment allowable is $410. If you’re 70 years old or older, it’s $5,110.
2. If you are not funding LTC with insurance, HSA funds can still be utilized. Maintenance or custodial care expenses that assist a person with activities of daily living may qualify.
3. LTC services don’t always have to be provided in an institutional setting. Private home-care services can be covered by HSA funds as they are considered health-maintenance related expenses.
4. LTC services that are HSA eligible must meet a “plan of care” provided by a licensed health-care practitioner. The written “plan of care” is defined as any physician, registered professional nurse, licensed social worker or other individuals who meet such requirements as may be prescribed by the secretary of the Treasury.
5. Document all LTC expenses paid with HSA dollars for future IRS inquiries.
Utilizing HSAs is one of the many ways that Soundmark helps clients maximize savings options and manage taxes as part of our life and retirement planning process. Let us know how we can help you and your family plan for the future.