Many employers embrace HSA-eligible, High Deductible Health Plans (HDHPs) to reduce premium costs, pairing them with Health Savings Accounts. While the primary intent of HSAs was to help reduce the cost of healthcare through tax-free contributions, earnings, and withdrawals, they also offer less well-known benefits. Here are six additional ways HSAs can help account owners make the most of their tax-advantaged savings.
No Reimbursement Deadlines
HSA account owners can receive reimbursements for eligible expenses at ANY time after opening an account. There are no filing deadlines! For example, a participant opens an HSA on June 1, 2015, and incurs a qualified expense the next day. That person can receive a qualified distribution (reimbursement) for that expense from their HSA on any future date. However, an otherwise qualified expense incurred on May 31, 2015, would not be eligible since the HSA benefit was unavailable (not yet opened).
Some people like to pay out-of-pocket for months or years and save their receipts to file all at once. That may create a nice cash windfall.
Anyone Can Contribute
When a participant enrolls in an HSA-qualified High Deductible Health Plan (HDHP) and opens an HSA account, anyone can contribute to it. That includes the participant, spouse, employer, parent, or anyone. However, the participant owns all funds deposited into their account and receives all related tax advantages.
Keep HSA Funds Forever
With a Flexible Spending Account (FSA) or Health Reimbursement Arrangement (HRA), unspent funds stay with the employer if the participant leaves their job. On the other hand, HSA account holders own their HSA accounts and all funds in them. So, if the participant leaves their job for whatever reason, the HSA stays with them. This is known as “portability.”
Use the Funds Post-HDHP
If a participant is no longer actively enrolled in an HSA-eligible HDHP, they cannot contribute to their HSA unless and until they enroll in another qualified plan. However, they still own the HSA account and can continue to use the funds to pay for qualified healthcare expenses, regardless of insurance coverage status.
Catch-Up After Age 55
Each plan year, the IRS sets an annual contribution limit for HSA account holders. However, account owners aged 55 or older can make ‘catch-up’ contributions up to $1,000 over the annual limit. This helps HSA owners preparing for retirement and possibly higher medical expenses build up their balances faster to ease future financial burdens.
No Tax Penalties After Age 65
Until age 65, HSA account owners can use the funds in their accounts tax-free for qualified expenses. But if they use any of the funds for non-qualified expenses, they pay income taxes and a 20% penalty on the unqualified amounts.
However, once they reach age 65, HSA account owners can continue using tax-free funds for qualified expenses and withdraw funds for any other reason without penalty. These non-qualified withdrawals count as regular income for tax purposes.
DataPath Summit is a cloud-based administration platform for FSAs, HRAs, Transit/Commuter accounts, Limited Purpose FSAs, HSAs, and Lifestyle Spending Accounts. Please enter your email to receive notifications about new blog articles (above right).