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February 4, 2021

How to Get the Most Out of Your Health Savings Account

MLJ Financial Services, LLC dba MLJ Insurance is not a tax advisor. The points provided are a service to the general public and are not intended to be tax advice. Anyone seeking specific tax advice should discuss such points with a tax advisor.

What is a Health Savings Account? A Health Savings Account (HSA) enables you to set money aside on a pre-tax basis to pay for qualified medical expenses.

What designates a qualified medical expense that I can pay from my HSA? Health insurance premiums cannot be paid from an HSA. However, you can pay for a wide range of IRS-qualified medical expenses, even some that may not be covered by your health insurance plan. To see a complete list of IRS-qualified medical expenses, you can go to: irs.gov

Whose qualified medical expenses can I pay for from my HSA? You can pay for qualified medical expenses for anyone that is your dependent on your tax return. This typically includes your spouse and children.

How do I make a legal contribution to an HSA? You can only contribute to one if you have a High Deductible Health Plan (HDHP). There are limits to the amount one can contribute and you can find the most actually numbers on our website at: Health Savings Account, HSA – MLJ Insurance contributions If both spouses are HSA eligible and either has  family HDHP coverage, their combined contribution cannot exceed $7,100 for 2020 and $7,200 for 2021.

Catch-Up Contribution: If you are age 55 or older, you can contribute an additional $1,000 per year. If your spouse is 55 or older, they may establish a separate HSA and contribute to that account.

To Keep in Mind: If either spouse has non-HDHP coverage that covers both spouses, they are both ineligible to contribute to an HSA. However, if only one spouse has HDHP coverage, this spouse can still use the funds in their HSA for qualified medical expenses for their spouse and children.

Can I open a joint HSA with my spouse? You cannot open a joint HSA account. Each spouse must open their own account. However, you can authorize your spouse to be a signer on your HSA.

To Keep in Mind: Each spouse may open and contribute to their own HSA, if they both have HDHP coverage. Or you may opt to have one spouse open an HSA and only this spouse can contribute to the HSA. An advantage to having both spouses open an HSA is for catch-up contributions if one of the spouses is over 55 (see Catch-Up Contribution above).

Remember: You must still ensure that the combined yearly contribution for both spouses, even though they both have separate HSAs, does not exceed the annual family maximum.

Is there a deadline as to when I can contribute to my HSA? Yes, you need to make a yearly contribution by the tax deadline. For example, the last day you can contribute for the year 2020 is April 15, 2021.

Do I need to have a HDHP to pay for a qualified medical expense? No, you only need a HDHP to contribute to one. You can pay for qualified medical expense any time from an HSA.

Is there a time limit as to when I can reimburse myself from my HSA for a qualified medical expense? No, if you had the HSA when you incur the expense, you can reimburse yourself for this expense at any time.

Can my HSA funds ever be taxed? It depends on how you use the funds. Any funds from your HSA that are used to pay for non-qualified medical expenses are considered part of your gross income and are subject to an additional 20% in tax. Exceptions to this rule are if an account holder has died, been diagnosed as disabled or is over 65 years old.

What proof do I need to have regarding my HSA for filing taxes? The IRS requires that you keep records for all your HSA spending. Good record keeping is vital to avoid future headaches. You must keep records sufficient to prove that:

  1. The distribution was used exclusively to pay or reimburse qualified medical expenses.
  2. The qualified medical expense had not been previously paid or reimbursed from another source.
  3. The medical expense had not been taken as an itemized deduction on your tax return.

Important tax tips to keep in mind when using funds from your HSA:

  1. You may use funds at any time in life for approved medical expenses and the funds will not be taxed.
  2. You may withdraw funds as IRA withdrawals, if you are over 65. These funds can be used in any way but will be taxed at the current tax rate at the time of withdrawal unless they are used for qualified medical expenses.
  3. If you are younger than 65, any withdrawal that is not used for medical expenses will be taxed at current rate and will be fined.

“The best preparation for tomorrow is doing your best today.” H. Jackson Brown Jr.

The post How to Get the Most Out of Your Health Savings Account appeared first on MLJ Insurance.

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