Americans are always looking for new ways to save taxes. Health Savings Accounts (HSAs) are a way for Americans to save on taxes while also saving for medical emergencies. To be eligible for an HSA, you must be covered under a high-deductible health plan (HDHP) with an annual deductible of at least $1,400 for an individual or $2,800 for a family. Additionally, you cannot be covered under any other health plan, such as Medicare, and you cannot be claimed as a dependent on anyone else’s income tax return.
You can open an HSA with a bank or other financial institution, and contributions are limited to the annual deductible under the HDHP, up to a maximum of $3,850 for an individual or $7,750 for a family. Contributions to an HSA are tax-deductible, even if you do not itemize your deductions, similar to a traditional IRA, and the funds grow without being taxed. Qualified distributions from the HSA, which are medical expenses paid by you, your spouse, or your dependents that are not covered by insurance or any other program, are not taxable, similar to a ROTH IRA.
Qualified distributions can include medical insurance deductibles, over-the-counter medications, plan co-payments, and more, but premiums for health insurance are not considered qualified distributions. Long-term care insurance, COBRA continuation coverage, and health coverage while receiving unemployment compensation all qualify. Using an HSA can be a great way to save for future medical expenses and avoid paying taxes on that money.
If you die with money in the account, your spouse can continue to hold the account and use it as you would have. However, if the account goes to someone other than your spouse, that beneficiary would have to withdraw the funds and pay income tax on the withdrawal, but no penalty tax.
While not everyone is eligible for an HSA, if you qualify, it can be a great way to save for future medical expenses and avoid paying taxes on that money. Consider consulting a qualified estate planning attorney to determine if an HSA is right for you and fits into your overall financial goals.
Compliments of the McGee Law Firm, Attorney Brandon McGee
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