What is a Health Savings Account and how can you use as you get ready to enter your Medicare years?
A Health Savings Account (HSA) was created as part of the Medicare Modernization Act of 2003.
According to IRS, the key benefits of an HSA are:
- You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you don’t itemize your deductions on Schedule A (Form 1040).
- Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
- The contributions remain in your account until you use them.
- The interest or other earnings on the assets in the account are tax free.
- Distributions may be tax free if you pay qualified medical expenses. See Qualified medical expenses.
- An HSA is “portable.” It stays with you if you change employers or leave the work force.
And the criteria for eligibility for a HSA
- You are covered under a high deductible health plan (HDHP)
- You have no other health coverage except what is permitted under Other health coverage.
- You aren’t enrolled in Medicare.
- You can’t be claimed as a dependent on someone else’s 2022 tax return.
A key point to be aware of is that contributions to an HSA are not allowed if you are a participant in Medicare. Pre-planning, years ahead, is essential.
Second key point is that HSA accounts go hand-in-hand with High Deducible Health Insurance Policies. If your employer has this type of medical insurance plan then you are allowed to open an HSA. Contributions are tax deductible, and 2003 limits are $3,850, additional $1,000 allowed if you are 55 or older.
Your balance rolls over year to year, you don’t lose it if you don’t use it. Similar to a Retirment account you can designate a beneficiary and generally can be used to cover spousal medical expenses too. Also, in some cases your spouse can have his/her own HSA account doubling the opportunity.
You can use the monies in the HSA to take care of current medical needs or save for future expenses. Many people are surprised to learn that Medicare has it owns deductibles, generally doesn’t cover vision, dental and hearing aids. Setting aside money before the Medicare years will be advantageous.
A Health Savings Account can be a very smart move as you prepare for future medical needs. Definitely worth looking at and seeking wise counsel on the best way to open an account and allocate monies for this type of savings plan.