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Health Savings Account - By John R. Bullis, CPA

Updated: Feb 21, 2023

The Health Savings Accounts (HSAs) give great tax savings for folks under age 65. When you turn age 65 and are eligible for Medicare, you can not make contributions to your HSA. Whatever is in the account at age 65 is not lost. You can still use it to pay (or reimburse yourself if you paid) doctor, dentist, eye glasses and exams, prescriptions and all other medical bills. You can also use HSA money to pay premiums for Medicare Parts B and D and for Medicare Advantage plans. Assuming you are younger than age 65, the contributions to your HSA are deductible on page 1 of form 1040 (even under the new law). That reduces your income tax. Distributions or payments from your HSA for medical expenses are not taxable! Many folks do not have enough medical expenses to get an itemized deduction. By using the HSA account provisions you get a deduction for contributions and the payment of medical expenses from the HSA are not taxable income. That is about as good as it gets! There recently was some confusion about the limit of contributions for family coverage. First IRS said the 2018 “inflation-adjusted” limit was $6,900. Then IRS said in March 2018, the limit was reduced to $6,850. The new tax law adjusted tax brackets, standard deductions and other items so IRS then said the limit for 2018 family coverage contributions was back to $6,900. If the HSA account was just for you (one person known as “single coverage”), the 2018 contribution limit is $3,450. The HSA account can be set up at a bank or with a stock broker. If you make contributions but don’t claim (or take) distributions, the account can be invested in many ways. If you plan to just let it accumulate then you might consider investing in good, large company stocks that pay dividends. The earnings in the HSA are not taxable. The other main requirement for HSAs is your basic medical insurance must have an annual deductible of $2,700 for family coverage and $1,350 for self only coverage. The annual out-of-pocket expenses limit is $13,300 for family coverage and $6,650 for self only coverage. Out-of-pocket expenses are any medical expense, but not premiums. Your employer can make contributions to your HSA. If you or someone you know might benefit from having an HSA account, why not consider it? Did you hear “There are three ways to get something done; do it yourself, hire someone, or forbid your kids to do it.” Monta Crane

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