You may have heard about a Health Savings Account (HSA) and wondered what exactly it is and how it works. Below, your trusted California health insurance agent highlights the benefits of an HSA for everyday consumers.
A Health Savings Account allows you to set aside money for qualified healthcare expenses that are not covered by your health insurance plan or other sources (e.g. Medicaid), tax free. Examples of qualified health expenses include:
- Birth control pills
- Dental treatment (braces, X-rays, fillings, etc.)
- Eye surgery
- Laboratory tests
- Psychiatric care
- Transplants
As illustrated above, an HSA can be used for a wide range of healthcare services and procedures. You can even use HSA funds to cover over-the-counter (OTC) medications, such as acid reducers and allergy medications; however, as of January 1, 2011, you must have a doctor’s prescription for OTC medications in order to be eligible for payment or reimbursement from an HSA.
Tax Benefits of an HSA
The maximum annual contribution limit for an HSA in 2014 is $3,300 for an individual and $6,550 for a family. The amount you put into an HSA up to maximum allowed contribution is tax-deductible. The more you contribute, the greater your tax savings.
What Happens to the Money in an HSA After I Retire?
Medical costs often increase later in life. The good news is that you can use an HSA after age 65 to pay for qualified medical, dental, vision, and prescription costs. You can use funds from an HSA to pay for Medicare costs, including the Medicare Part A Deductible and Medicare Part D prescription drug premiums and co-insurance costs. You can also use the money for non-medical expenses with no penalty; however, you’ll have to pay ordinary income taxes on those amounts after age 65.
It’s easy to see how setting aside money in an HSA can help with large and unexpected expenses, such as braces for your child or a broken bone. HSAs can be especially helpful when it comes to dental and vision expenses, since even those who have dental and vision plans often find that a significant portion of the costs are not covered by the plan.