An HSA, or Health Savings Account, is a special type of tax-advantaged savings account designed to help you pay for out-of-pocket medical expenses when you have a high-deductible health plan, or HDHP. In addition to being a smart way to pay for medical expenses like your deductible, copays, and coinsurance, HSAs are increasingly being used as part of a retirement-planning strategy.
The money in your HSA is yours. You can spend it on whatever you wish. However, if you want to avoid paying income taxes and penalties on it, you’ll only take a distribution from your HSA to pay for eligible medical expenses.
Eligible medical expenses include medical expenses your health insurance doesn’t pay for, but that are eligible to be taken as a deduction on your federal income taxes (if you use money from your HSA to pay these expenses, however, you cannot deduct them on your tax return, since that would be double-dipping). See the entire list in IRS Publication 502, but here’s a synopsis:
- Your health insurance deductible, copayments, and coinsurance.
- Prescription medications. Over the counter medicine like Tylenol isn’t eligible unless you have a prescription for it. Medical marijuana isn’t eligible even if you have a prescription and are in a state where it’s been legalized.
- Dental expenses like teeth cleanings, preventive care, and fillings. However, purely cosmetic dentistry like teeth whitening isn’t eligible.
- Eye exams, vision correction surgery, glasses, contact lenses, and contact lens supplies as long as the glasses or contacts are used for medical reasons like vision correction.
- Breastfeeding supplies.
- Diabetic supplies.
- In vitro fertilization expenses.
- Alternative medical care your health insurance may not cover such as acupuncture treatments, chiropractic care, and medical care provided by a Christian Science practitioner.
- The premium is for COBRA continuation of your health insurance, your spouse’s health insurance, or your dependents’ health insurance.
- The premium is for long-term care insurance (subject to limits.)
- The premium is for health insurance while you’re receiving government unemployment compensation.
- If you're 65 or older, the premium for Medicare Parts A, B, and D, or Medicare Advantage. However, Medicare supplement insurance (Medigap) isn’t an eligible expense.
Even though your HSA is technically an individual account, you may use it to pay for the eligible medical expenses of your spouse and your tax dependents, also.
Cosmo Insurance Agency is an independent insurance agency serving surrounding communities in New Jersey. Cosmo keeps its promise to assure an efficient and creative approach to the services we offer. Each of our clients experience a personalized and long-term relationship with us. Our New Jersey based team of health brokers guides our clients in helping them choose the most cost-effective options. By incorporating the latest in technology-based tools and laws on healthcare, employee benefits, life insurance and finance, we keep our clients up-to-date with the plans that encompass all of their needs, whether it is individual or group insurance.
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