Because the money allocated by your employer doesn't count as income, there are no tax implications. It's kind of like getting a raise. Participating in an HRA is a great way to stretch your healthcare budget. An HRA usually sits alongside a health plan with higher deductible, coinsurance and copayment minimums; often these health plans have lower monthly medical premiums allowing you to save money.
Some employers allow you to rollover and accumulate unused funds year after year. The more you save in your HRA, the more funds you will have to pay eligible medical expenses when they occur.
An employer may also make the HRA portable so that you can take the funds with you when your employment ends or when you retire. HRA funds must be used for healthcare expenditures only. Approved healthcare expenditures include those expenses identified by your employer as reimbursable from the HRA that are described as Medical Expenses in Section d of the IRS code. These expenses may include deductibles, coinsurance, copayments, prescription drugs, vision care and dental care.
Your employer may limit the expenses your plan reimburses; please consult with your Human Resources department for more information on what expenses are covered by your HRA. The IRS has a list of approved healthcare expenditures. However, your employer might have additional limitations. Examples of expenses that are not eligible for reimbursement include:.
Medical expenses that do not meet IRS section d requirements e. Medical expenses incurred by you, your spouse or any eligible dependents prior to your effective date in the plan; and, Medical expenses that can be reimbursed to you through any other source such as group health insurance.
HRAs are only funded by your employer. Your employer contributes a determined amount to your HRA. Contact your HR department for specifics on your plan setup. An HRA is designed to cover expenses not paid by your health plan including deductibles, coinsurance and copayments as well as many expenses your health plan may not cover.
HRA funds can be used on eligible expenses determined by your employer. These typically include co-pays, health insurance deductibles and other IRS approved healthcare expenses. For more information on your plan, contact your HR department.
You can access forms by logging into the Member Website. By accessing you will be leaving the HSA Bank web site and entering a web site hosted by another party. Please be advised that you will no longer be subject to, or under the protection of, the privacy and security policies of the HSA Bank web site.
We encourage you to read and evaluate the privacy and security policies of the site you are entering, which may be different than those of HSA Bank. HSA Bank shall not be responsible or liable for any loss incurred due to you using this third party site. What is an HSA? Is an HSA right for me? Who is eligible to open an HSA? You cannot be covered by TriCare. You must be covered by the qualified HDHP on the first day of the month. What is a qualified high deductible healthcare plan HDHP?
Can I be covered under another health plan and still open an HSA? What are the advantages of opening an HSA? With an HSA, you'll have: A tax-advantaged savings account that you use to pay for IRS-qualified medical expenses as well as deductibles, co-insurance, prescriptions, vision and dental care Contributions to your HSA can be made with pre-tax dollars, which reduces your taxable income.
Any after-tax contributions that you make to your HSA are tax deductible. Unused funds that will roll over year to year. Let's do some simple math to see how handsomely this HSA savings and investment strategy can pay off. What about a more conservative estimate? Try out an online HSA calculator to play with the numbers for your own situation. Here are some options for using your accumulated HSA contributions and investment returns in retirement. Remember, distributions for qualified medical expenses are not taxable, so you want to use the money exclusively for those expenses if possible.
There are no required minimum distributions , so you can keep the money invested until you need it. If you do need to use the distributions for another purpose, they will be taxable. In this way, an HSA is effectively the same as a k or any other retirement account, with one key difference: There is no requirement to begin withdrawing the money at age By waiting as long as possible to spend your HSA assets, you maximize your potential investment returns and give yourself as much money as possible to work with.
You obviously want to avoid selling investments at a loss to pay for medical expenses. When you open your HSA, you will be asked to designate a beneficiary to whom any funds still in the account should go upon your death.
If you're married, the best person to choose is your spouse because they can inherit the balance tax-free. As with any investment with a beneficiary, however, you should revisit your designations from time to time because death, divorce, or other life changes may alter your choices.
Your plan administrator will have a designation-of-beneficiary form you can fill out to formalize your choice. Funds captured in an HSA can help out with such skyrocketing costs. Qualified payments for which tax-free HSA withdrawals can be made include:. You can also use your HSA balance to pay for in-home nursing care, retirement community fees for lifetime care, long-term care services, nursing home fees, and meals and lodging that are necessary while obtaining medical care away from home.
You can even use your HSA for modifications, such as ramps, grab bars, and handrails, that make your home easier to use as you age. One strategy might be to bunch qualified medical costs into a single year and tap the HSA for tax-free funds to pay them, compared with withdrawing from other retirement accounts that would trigger taxable income.
Also, note that there are limitations on how much you can pay tax-free for long-term care insurance based on your age. With an HSA you are not required to take a distribution to reimburse yourself in the same year you incur a particular medical expense. So keep your receipts for all healthcare expenses you pay out of pocket after you establish your HSA. If in your later years, you find yourself with more money in your HSA than you know what to do with, you can use your HSA balance to reimburse yourself for those earlier expenses.
The strategies described in this article are based on federal tax law. Most states follow federal tax law when it comes to HSAs, but yours may not. As of the tax year, California taxes HSA contributions. The taxation of these plans could change in the future at either the state or federal levels. The plans could even be eliminated altogether, but if that happens, we would likely see the existing account holders exempted , as was the case with Archer MSAs. A health savings account, available to consumers who choose a high-deductible health plan, has been largely overlooked as an investment tool, but with its triple tax advantage, it provides an excellent way to save, invest, and take distributions without paying taxes.
Of course, you can't let the savings tail wag the medical dog. Hoarding your HSA monies rather than attending to your health is not recommended. Internal Revenue Service. Accessed Nov. Employee Benefit Research Institute. Kaiser Family Foundation. The Wall Street Journal. Social Security Administration. Wisconsin Department of Employee Trust Funds. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts. We do not sell insurance products, but this form will connect you with partners of healthinsurance.
You may submit your information through this form, or call to speak directly with licensed enrollers who will provide advice specific to your situation. Read about your data and privacy. The mission of healthinsurance. Learn more about us.
Key takeaways In order to contribute to an HSA, you need to be covered under a high-deductible health plan. HSA contributions are pre-tax and funds grow tax free. You can withdraw your funds at any time to pay for qualified medical expenses. If you have an HSA through an employer, the money in the account is yours — and you can take the balance when you leave your job.
You can find HSA-qualified plans through your health insurance exchange. You can think of your HSA as a long-term investment. Find health savings accounts Helping millions of Americans since ZIP Code. The card itself may have restrictions on where you can spend—and on what. For example, your card might not work if you try to use it at a supermarket or convenience store.
If you can't run a transaction using your HSA card, you will have to submit your expenses for reimbursement after the fact. It's not the end of the world, but it is an inconvenience that might not be worth the trouble for a few small items.
But, because your savings are tax-related, they're subject to IRS scrutiny. Spending in Good Health Using your HSA to restock your medicine cabinet or stock up on items like sunscreen and first-aid supplies might make the most sense if you do so in single, dedicated shopping trips, rather than trying to submit receipts for reimbursement every time you buy a bottle of ibuprofen at the grocery store.
Using your HSA for beneficial treatment and expenses—as long as you can afford them—is a clearer win. Needed dental treatment, orthopedic supplies or a new pair of glasses are not only valuable; they can be life-affirming. If you don't have an HSA but would like to learn more, do some research, ask your employer for information or look for financial institutions that can offer you an account. While HSAs may not provide a universal cure for all of your healthcare-related costs, they can be a valuable device in your financial toolkit.
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