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 don’t despair if that isn’t the case for you…. YOU TOO MAY BE ABLE TO HAVE AN HSA! Yay!
First the bad news (let’s get that out of the way)….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 can make a prorated contributed for the months before the month you were eligible for 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 2015:
- Single $3,400 (PLUS $1,000 if age 55 or older during the tax year)
- Family $6,750 (PLUS $1,000 if age 55 or older during the tax year)
There are 3 main benefits to an HSA:
- YOU GET A TAX DEDUCTION (and who doesn’t like that, right?)
- Your distributions are tax free if used for qualified medical/dental/optical costs
- The EARNINGS grow tax free too! If used for qualified expenses, they are ALSO tax free
But WAIT! There’s MORE! Other fantastimagical elements of an HSA include….
- There is no minimum distribution from it so it can serve as another retirement account. You can pay bills for your spouse and dependents (even your children claimed by the other parent)
- 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.
- 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).
- Unlike an FSA, if you don’t use the money in an HSA by the end of the year, you don’t lose it.
- 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.
- If you lose your job you keep your HSA. It belongs to you!
- You can pay COBRA premiums from your HSA.
- There are no income limits for eligibility to have an HSAYou should name a beneficiary on the HSA account. If it is your spouse then it become their HSA after you die. If it is someone other than your spouse it is no longer an HSA and is taxable to them.
- After age 65 or if disabled or deceased, if a distribution is for something other than qualified medical expenses, the amount is taxable but the 20% additional tax doesn’t apply
- The bills you are paying, or reimbursing yourself for, must have been incurred after the HSA was established
When bringing in source documents to have your taxes prepared: bring the contributions and distribution tax documents but we also need to know…of the amount contributed during the tax year…how much was actually for the tax year. The tax document you are given also shows about contributed for the previous year.