10 Things You Must Know about HSAs

As the summer heats up, healthcare remains a hot topic. Will the ACA survive? Will Congressional Republicans succeed in repealing and replacing it? As we reach July these questions remain unanswered. One thing that is clear, however, is that Health Savings Accounts (HSAs) are playing a significant role in the healthcare deliberations. Proponents advocate expanding these accounts as a way to save on health costs and get a tax break. Opponents argue that HSAs can’t help those who cannot afford to fund them.

Here are 10 things you must know about HSAs as we watch the healthcare debate rage on in Washington.

1. To be eligible to make an HSA contribution under the current rules you must be covered by a high deductible health plan. The rules are very specific about what plans qualify. If you have questions if your plan qualifies you should ask your employer or health insurance provider.

2. Your contribution limit will depend on your age and the type of health insurance you have. The HSA contribution limits are indexed for inflation. For example, if you have family coverage and are age 55 or over in 2017, you may contribute $7,750 to your HSA.

3. There are currently no income limits for HSA contributions and you do not need to have earned income to contribute.

4. If you make an HSA contribution, currently you may deduct that contribution regardless of how high your income is.

5. Your employer may fund your HSA or you can fund it yourself. Remember that combined contributions cannot exceed the maximum contribution limit for the year.

6. You can take tax-free distributions from your HSA for qualified medical expenses, including those of a spouse or dependent. This is true even if your spouse or child is not covered under the HSA compatible high deductible health insurance.

7. Qualified medical expenses include those that would generally qualify for the medical and dental expense deduction.

8. You can take a tax-free distribution from an HSA to reimburse yourself for qualified medical expenses in prior years as long as the expenses were incurred after you established your HSA  and you have proof of those expenses.

9. You cannot contribute to an HSA once you are enrolled in Medicare. However, you can keep your existing HSA and you can still take tax-free distributions for qualified medical expenses.

10. You can name a beneficiary for your HSA. If your beneficiary is your spouse, the HSA will become theirs and can continue to be used tax-free for qualified medical expenses.