With the continued increase in health insurance cost, many employers and self-employed individuals are using high-deductible health insurance plans combined with a Health Savings Account (HSA). HSAs can be a great way to manage healthcare costs, gain a tax deduction, and save future dollars. Here are some quick facts about HSA’s.
1. You must participate in a high-deductible health insurance plan. In 2016, the deductible must be at least $1,300 for individual coverage or $2,600 for family coverage.
2. You can make tax deductible contributions to an HSA in 2016 of up to $3,350 a year if you have individual coverage, or up to $6,750 if you have family coverage.
3. People age 55 years and older can save an extra $1,000 per year.
4. Contributions, for the previous year, can be made to the account until the tax filing deadline of your tax return.
5. Money in the HSA can be used tax free on out-of-pocket medical expenses including your deductible, co-payments, prescription drugs, vision, dental care, and any other non-covered medical expense.
6. There is no deadline for reimbursement of out-of-pocket medical expenses from your HSA. You can essentially delay reimbursements for many years letting the HSA dollars accumulate tax free. Then when you do take the distribution it is tax free as long as you have maintained documentation of past medical bills.
7. HSA funds can be used tax free for payment of Medicare Part B, Part D, Medicare Advantage or a portion of your long-term care insurance premiums.
8. Warning: If you use HSA money for non-medical expenses you will have to pay taxes plus a 20% penalty if distributions occur before the age of 65.