Health Savings Accounts

Health Savings Accounts

IF you qualify to have an HSA, then you have until December 31st to open it.  Some employers have an HSA as an element of the benefit package but, if you qualify, you can open an HSA on your own.

The most common reasons you CAN’T have one are:

  • you participate in an FSA at work (a Flexible Spending Account)- when pretax dollars are set aside for health care costs (unless the FSA only covers dental/optical expenses)
  • you participate in an HRA at work (a Health Reimbursement Account)
  • you are on Medicare
  • you don’t have a HDHP (a High Deductible Health Plan)

See IRS Publication 969 (fun reading) for more on all these accounts.

IF the above doesn’t apply to you then the most common way to open an HSA is through a bank.  You can have either a Single Plan if you have Individual health care coverage or a Family Plan if your medical plan covers more than just you.

The amount you can contribute for 2017:

  • Single $3,400 (PLUS $1,000 if age 55 or older during the tax year)   For 2016: $3,350
  • Family $6,750 (PLUS $1,000 if age 55 or older during the tax year)  For 2016: $6,750

If you have single insurance coverage you can only have a Single HSA (and contribution amount) BUT you can still pay your dependent’s medical expenses out of it.

There are 3 main benefits to an HSA:

  1. YOU GET A TAX DEDUCTION (and who doesn’t like that, right?)
  2. Your distributions are tax free if used for qualified medical/dental/optical costs
  3. The EARNINGS grow tax free, if used for qualified expenses!

Other elements of an HSA include….

  1. There is no minimum distribution from it so it can serve as another retirement account
  2. You have until April 15th of the following tax year to make the contribution for the year before. What is extra nice about this is that as long as you have an HSA by the end of the year then you can do some “what if” scenarios on your taxes to decide how much to contribute before April 15th.
  3. An HSA contribution lowers your AGI (adjusted gross income) which lowers your Ohio income taxes and allows for other goodies in some cases (such as a higher deductible amount for a Traditional IRA and a lower amount to have to exceed before various itemized deductions are allowable).
  4. Unlike an FSA, if you don’t use the money in an HSA by the end of the year, you don’t lose it.
  5. Even if you don’t qualify to continue to contribute to an HSA, for whatever reason, you don’t have to take the funds out of the HSA and you can get distributions for your qualified expenses.
  6. If you lose your job you keep your HSA. It belongs to you!
  7. You can pay COBRA premiums from your HSA.
  8. There are no income limits for eligibility to have an HSA.

If you have an HSA thru your job, both you and your employer can contribute, however, the sum on the contributions cannot exceed the maximum amount allowed.

When bringing in source documents to have your taxes prepared: you will receive one tax document for contributions made to an HSA and another one for distributions taken from the HSA.