Hoozone | E+ | Getty Photos
What are HSAs?
HSAs carry a triple tax benefit: Account contributions are tax-free, as are funding earnings and withdrawals if used for certified bills.
Shoppers can use HSA funds for a non-qualified buy — however they’d lose a prong of the three-tiered tax profit. A withdrawal could be taxed as revenue, much like the way in which a pre-tax 401(ok) or particular person retirement account works.
In a great world, customers would be capable to totally fund their HSA annually and pay for present well being prices out-of-pocket, leaving the accounts untouched till retirement, based on monetary advisors.
“The compounding of earnings might fund all of your well being care once you’re previous,” mentioned Carolyn McClanahan, a doctor and authorized monetary planner, based mostly in Jacksonville, Florida.
However it’s not all the time doable to make use of HSAs that means — particularly for decrease and center earners who could not be capable to shoulder these bills. HSAs are usually paired with high-deductible well being plans which, relying on the plan, might generate huge payments for medical care.
Listed below are 4 instances by which HSA funds could be utilized to premiums:
1. COBRA premiums
Premiums for health-care continuation protection reminiscent of COBRA rely as a certified expense, based on the IRS.
COBRA lets individuals who lose well being advantages — on account of circumstances like job loss, discount within the hours labored, jobs transitions, loss of life or divorce — proceed their office well being protection on a short lived foundation.
COBRA protection usually permits customers to maintain the identical health-care suppliers, however the protection is commonly dear.
When employed, employees usually solely pay a share of the overall premium, with the remaining backed by their employer. With COBRA protection, nevertheless, people could should cowl the total premium, up to 102% of the associated fee to the plan.
The overall common premium for single protection by way of a office plan in 2023 is $703 a month, or $8,435 a yr, according to KFF, a nonprofit well being information supplier. For households, it is $1,997 a month, or $23,968 a yr.
2. Premiums whereas on unemployment
Well being premiums paid by somebody receiving unemployment compensation below federal or state regulation are additionally eligible.
These is perhaps premiums for COBRA or a well being plan bought over an Inexpensive Care Act marketplace, for instance.
3. Medicare premiums
Medicare premiums for folks age 65 and older are additionally certified, based on the IRS.
This would come with premiums for Components A (hospital insurance coverage), B (medical insurance coverage) and D (prescription drug protection).
Nonetheless, premiums for Medicare supplemental well being insurance policies — like Medigap plans — aren’t certified.
ATU Photos | The Picture Financial institution | Getty Photos
“The large mistake I see again and again is folks considering they’ll use HSAs for Medigap bills,” McClanahan mentioned.
Medicare beneficiaries do not should pay their premiums immediately with an HSA to get the profit. They’ll pay from their Social Safety checks or from a checking account, for instance, and reimburse themselves with their HSAs later, McClanahan mentioned. Maintain data and receipts of all these transactions, she suggested.
There’s a further caveat: If the HSA proprietor is not 65 years or older, then Medicare premiums for a partner or a dependent who’s 65 or older usually aren’t certified, the IRS mentioned.
4. Lengthy-term care premiums
Shoppers also can use their HSAs to pay for long-term care insurance coverage premiums.
There are dollar limits on certified premiums on based mostly on age. Right here was the breakdown for 2022:
- Age 40 or below — as much as $450
- Age 41 to 50 — $850
- Age 51 to 60 — $1,690
- Age 61 to 70 — $4,510
- Age 71 or over—$5,640
The age corresponds to the particular person for whom the premiums have been paid. The greenback limits are up to date yearly.
The insurance coverage should be a “certified long-term care insurance coverage contract,” as outlined in IRS Publication 502.
Ideally, customers would pay out of pocket for his or her long-term care premiums earlier than they retire, McClanahan mentioned. Nonetheless, it usually is sensible to make use of an HSA to pay these certified premiums in the event that they’re retired and now residing off their financial savings, she mentioned.
