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Health Savings Accounts: Key Provisions

Posted on April 21st, 2020

Health Savings Accounts (HSAs) have been available since 2004. Employees and individuals enrolled in qualified high deductible health plans (HDHPs) can put money into an HSA to pay for medical expenses at a later date. The contributions are tax-deductible, and if money is used to pay for medical expenses, the money can be withdrawn from the HSA tax-free. Unlike Flexible Spending Accounts (FSAs), there is no cap on the amount of money that can be rolled over from one year to the next.
 
While we are smack-dab in the middle of a pandemic, we felt it was important to share some other less known, but key provisions about HSAs:
 

1)  Insurance  Premiums:  

HSA  regulations generally prohibit the use of funds for health insurance premiums, but there are exceptions to the rule. HSA funds can be used tax-free to pay for health insurance premiums while receiving unemployment compensation under federal or state law. COBRA premiums are also an eligible expense. Additionally, Medicare premiums (other than Medicare Supplement premiums) and long-term care premiums are eligible expenses. 
 

2)  Reimbursing Yourself: 

HSA regulations do not require funds to be withdrawn in the same year in which a medical expense was incurred. As long as the HSA account is open at the time of the medical expense, a person can reimburse themselves from the HSA (tax-free) several years down the road. For those individuals looking for a source of cash, the HSA may be an option to consider, especially if there are 
previous unreimbursed medical expenses.
 

3)  Non-Qualified Expenses: 

While the intent of  an HSA is to be a source of money to pay for medical expenses, you can use your HSA for non-medical expenses if necessary. Income taxes and a 20% penalty will apply (penalty waived for anyone age 65 or older), so please take that into consideration. 
 

4)  Investments: 

HSA regulations allow funds to be invested in stocks, bonds, mutual funds and other publicly traded investment vehicles. While stock markets have seen significant losses over recent weeks, now may be a time to consider  investing those HSA dollars. You heard that right! This is the old  “buy low, sell high” strategy. If you don’t need to tap into your HSA  during these times, you may want to 
consider investing those HSA dollars with an expectation that markets will eventually bounce back. 
 
For more information on HSA rules and regulations, please refer to IRS Publication 969
 

Download our free HSA whitepaper!

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