Health savings accounts are accounts that are paired with high-deductible health plans. They are also a tax-efficient way to save for retirement offering savers a triple tax advantage, via tax-free contributions, investment growth and withdrawal (if money is used to pay qualified medical expenses). To qualify for an HSA you must have a high-deductible health care plan (HDHP) and must be 18 years old.
An individual has until April 15, 2020 to open an HSA for 2019 and a person with single coverage can contribute up to $3,500, with family coverage $7,000 and if you are 55 or older anytime during the year you may contribute an extra $1,000.
If you are Medicare age, there are some caveats that you must be mindful of. If you enroll in Medicare during the year your HSA contribution can be prorated but you cannot contribute after you enroll. If you have accidentally contributed to an HSA while enrolled in a Medicare plan, there may be tax penalties. You can reverse your excess contributions by completing a form available in your online account. Please consult a tax advisor for tax penalty questions. Note that there may be a fee charged by the bank custodian for excess contribution withdrawals. Additionally, if you are under 65 but your spouse is covered under Medicare you may still contribute to your HSA in your separate HSA (as long as you still meet the eligibility requirements).
Funds you withdraw from your HSA are tax-free when used to pay for qualified medical expenses and must be primarily to alleviate or prevent a physical or mental defect or illness, including dental and vision. Once you reach age 65 and are enrolled in Medicare, you may use HSA funds (tax and penalty free) to pay for Medicare Parts A, B, D and HMO premiums. However, make note that Medicare supplemental premiums are NOT eligible expenses.
In the recent past, there were little to no investment options for the savings plans and the funds simply would earn interest on cash. However, as of late there has been a push for investment options. Still, they were quite limited. Now, there is a movement for open-architecture platforms – banks such as HSA Bank who partner with various brokers in order to provide a more robust investment opportunity for savers.
TD Ameritrade is one of those partners and we have gained experience in handling the ins and outs of investing your health savings account. If you have an existing HSA or would have a high-deductible medical plan and would like to start one please contact us today.