JUNE 1ST, 2016

The many benefits of Health Savings Accounts

May 30, 2016 - CBS News

Anyone who's enrolled in a high-deductible health plan (HDHP) has the option of opening a Health Savings Account, or HSA. It's a special account that allows you to contribute tax-deductible money into it, which can later be withdrawn tax-free to reimburse the account owner for qualified medical expenses.

One of an HSA's best features -- and least talked about -- is that you have your entire lifetime to use the money in it to reimburse yourself. As long as you had an HSA at the time you incurred a qualifying medical expense and you save your receipts as proof that you weren't reimbursed, you can take the money out of your HSA tax-free to reimburse yourself, even many years after you incurred the expenses. Also, there's no age at which you must begin taking withdrawals, as there is for IRAs, which have required minimum distributions at age 70 1/2.

That's right. You get a tax deduction (up to the limits) for the the money you contribute to your HSA, where it can be left for many years, growing tax-deferred. Then you can take it out many years later, such as in retirement. Unique to HSAs, these features make the accounts ideal vehicles to supplement your retirement savings. One of the many qualifying expenses you can use your HSA for is to pay premiums for health insurance or long-term care insurance when you're 65 or older.

In 2016, the maximum annual contribution you can make to an HSA is $3,350 for a person with a single-coverage HDHP and $6,750 for qualifying family coverage. And if you're 55 or older in 2016, you can contribute an additional $1,000 per year over these limits.


What if you want to contribute to an HSA but don't have the cash to do it? If you have money in an IRA from a 401(k) rollover, another unique feature is that the law allows for a one-time transfer of IRA assets to fund an HSA. The amount transferred may not exceed the annual contribution limits, and the transfer, while not taxable, also isn't tax-deductible because it's coming from a source of pretax money.

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