Health Savings Accounts (HSAs) tend to generate a lot of questions from participants and people interested in opening an account. One of the most frequently asked questions (FAQs) about HSAs is, “When can I open an HSA?” I have an answer to this question and other HSA FAQs below.
The following is a list of HSA FAQs and their answers:
What are the requirements to open an HSA?
In order to open an HSA, you:
- Must enroll in a qualified high deductible health plan (HDHP);
- Cannot have any other health coverage, including Medicare; and
- Cannot be claimed as another person’s dependent
In 2020, the minimum deductible for an HSA qualified HDHP is $1,400 for individual coverage and $2,800 for family coverage. The HDHP minimum deductibles remain the same for 2021.
What are the tax advantages of an HSA?
HSAs have a triple tax advantage:
- Tax-free contributions
- Tax-free withdrawals for eligible medical expenses
- Earn tax-free interest and investment gains
When can I open an HSA?
You can open an HSA at any time AFTER you are enrolled in a qualified HDHP. Generally people enroll during open enrollment season (when they enroll in an HDHP), but that is not required.
Is an HSA health insurance?
No, it is not health insurance. An HSA is a savings account that you can use to pay for out-of-pocket medical expenses. However, you must have health insurance through a qualified HDHP to open an HSA (see above).
How much should I put in my HSA?
I recommend that you max out your HSA each year, or put in as much as you can afford. To better understand how much you will need to set aside in your account, add up all of your recurring medical expenses this year and consider any known upcoming expenses. That should give you a good estimate on how much to contribute for next year.
Here’s a guide on how to figure that out.
In 2020, people with single coverage can contribute a maximum of $3,550; people with family coverage can contribute up to $7,100. For 2021, the limits go up to $3,600 for single coverage and $7,200 for family coverage.
There is a special allowance for those age 55 and older. They can contribute up to $1,000 over the annual limit. This is known as a “catch-up contribution.”
What happens if I don’t spend all my HSA funds before the next year?
HSAs, unlike FSAs, have rollover. Any unused balance at the end of the year rolls over to the next year. This allows you to build up your balance for later use. You do not have to worry about “use it or lose it.”
How can I invest my HSA funds?
Investing your HSA funds is a great way to help grow your account. However, some administrators require that you have a minimum balance before you can start investing.
Learn more about the advantages of investing HSA funds.
What can I pay for with an HSA?
Your HSA can pay for a wide variety of IRS-approved eligible medical expenses for yourself and your dependents. This includes:
- Prescription medications
- Over-the-counter (OTC) medications
- Dental exams and treatments
- Eye exams, treatments, and prescription eye wear
- Insurance co-pays
- COBRA premiums
Can I use my HSA to pay for family members’ expenses?
You can use your HSA to pay for expenses for qualified dependents. That includes your spouse, children, or adult who is listed on your tax documents as dependents.
You are not allowed to cover roommates or other people who do not have a dependent status.
If I lose my job or health insurance coverage, what happens to my HSA?
An HSA is participant-owned. That means you keep your HSA for the life of the account, no matter your job status or if you lose your health insurance.
A couple of things to remember: you can only contribute to your HSA when you’re enrolled in an HDHP. However, you can continue to spend your HSA balance no matter the status of your healthcare coverage.
I had an eligible out-of-pocket expense in February 2017 but forgot to file a claim for it. Can I receive reimbursement?
You can file for reimbursement for any claim that was incurred after your HSA is established. There is no time limit for filing claims. You cannot file a claim for an expense that occurred prior to opening the HSA.
Here is an example: You opened your HSA in January 2017. You had an eligible expense in February, but did not file a claim. If you still have the receipt or supporting documentation, you can file a claim in 2020 (or beyond). You cannot, however, file claims through your HSA for expenses that you had before January 2017.
What happens if I withdraw my HSA funds for something other than health expenses?
If you are under age 65 and withdraw HSA funds for non-qualified expenses, you’ll receive a 20 percent penalty in addition to having to pay income tax on the withdrawal.
If you’re 65 or over, you can use your HSA money for any expense without penalty. However, you will still be taxed on withdrawals for non-qualified expenses. In retirement, you can continue to use your HSA tax-free for eligible healthcare expenses.
Learn more about HSA distributions and penalties.
How do I access my HSA funds?
Depending on your plan, you may be able to sign up for an HSA debit card. It links right to your account and allows you quick, convenient access to your HSA dollars.
You can also pay for your expenses out of pocket, then file a claim for reimbursement.
Can I have an HSA and an FSA at the same time?
You cannot have an HSA and a health Flexible Spending Account (FSA) at the same time. However, depending on your plan setup, you can have a limited purpose FSA. You may also have a Dependent Care FSA (also called a Dependent Care Assistance Plan) with an HSA. Learn more about this question.
This list of HSA FAQs is not all-inclusive. If you have additional questions, contact your benefits administrator.