Offered in conjunction with a qualified High-Deductible Health Plan (HDHP), an HSA is a savings vehicle that can be used to fund qualified medical expenses today and throughout one's retirement. The account is owned by the individual, and money deposited into the account can be invested with the potential to grow over time like money in an IRA or a 401(k).
1. No Required Minimum Distributions (RMDs)
2. Funds roll over every year
3. No income limits
4. Triple tax-free
1. Money is saved pre-tax.
2. Investments grow tax-free.
3. Withdrawals for qualifying expenses are tax-free.
While qualified medical expenses are always eligible for tax-free distributions, at age 65, you can also withdraw money from your HSA as ordinary income to help fund everyday expenses in retirement.
1. Balances used for qualified health-care expenses are tax-free.
2. Withdrawals for non-qualified expenses are taxed as ordinary income and incur a 20% penalty if taken before age 65.
1. Once you enroll in Medicare, you are no longer eligible to contribute to an HSA and must stop contributions. Contributions made after enrolling are not deductible and are subject to an excise tax.
2. You can still withdraw funds from your HSA for eligible medical expenses, including premiums for Medicare Parts B, medical insurance, Part D, prescription drug coverage, and a Medicare Advantage plan, along with deductibles, copayments and coinsurance for medical care and medications.
3. You cannot use funds from an HSA to pay premiums for Medicare supplement insurance, also known as a Medigap policy.
Source: IRS, Publication 969
Click here to view & download the complete Understanding Your HSA handout.
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