Got a health savings account? They’re great around tax time. Here are tips to maximize your deductions and savings.
Going to the doctor just got a little cheaper. Well, sort of. Eligible folks covered by a high-deductible health insurance plan (HDHP) can score tax deductions three ways with a health savings account. Plus, family limit contributions for 2016 have edged up, allowing taxpayers to sock away even more cash to save and pay for medical bills not reimbursed by insurance.
Health Savings Accounts (HSAs) are medical savings accounts that are an option for those enrolled in an HDHP. They don't tie people down with the old "use it or lose it" requirements of a flexible spending account. HSA funds stay in your account, accumulate, and grow year over year if you don't use them.
Investors can withdraw funds anytime to pay qualified expenses such as doctor visits, lab tests, health screenings, hospital stays, surgery, and even prescription medicines. "Taxpayers can pay with an HSA debit card offered by most plans or pay from other funds and reimburse themselves from their HSAs as long as the expense was incurred after they opened the HSA,” says Jackie Perlman, principal tax research analyst at The Tax Institute at H&R Block.
Uncle Sam's tax day is fast approaching. HSAs are tax advantaged in three ways:
In order to contribute to an HSA, taxpayers must have a high-deductible health plan (HDHP). For 2015 and 2016, your plan would need to have a minimum annual deductible of $1,300 for self-only coverage or $2,600 for family coverage to qualify. If you aren't sure your plan qualifies, ask your insurance provider.
For 2016, those with single coverage can contribute $3,350 to an HSA, while those with family coverage can contribute slightly more, up to $6,750. Investors age 55 and older can make an additional $1,000 catch-up contribution, which remains the same. See the table below.
Source: The Tax Institute at H&R Block
1. Take it with you. HSAs are portable. If you have an employer-sponsored HSA and you change jobs or stop working, the HSA goes with you.
2. HSAs can be an additional retirement planning tool. Funds can be used to cover many kinds of expenses not covered by Medicare and for which you no longer have insurance—dental bills, for instance. You can even use funds to reimburse yourself for Medicare, but not tie-in plan premiums, says Perlman.
3. You can invest the funds, similar to an IRA account. "You can invest HSA funds in stocks, bonds, mutual funds, and ETFs. However, keep in mind that, unlike an IRA, which you’d expect to leave alone until retirement, you may need your HSA funds on a much shorter time horizon," says Perlman.
4. You can pay family members’ bills. You can use your HSA to pay qualified medical expenses for your spouse, dependents, and adult children under 26—even if you have self-only health coverage, says Perlman.
5. Watch out. Withdrawals not used for qualified medical expenses are fully taxable and may also be subject to a 20% penalty.
Questions? Drop us a line 24/7 through the secure Message Center. You can also chat virtually in real time or speak to a Tax Services Representative at 800-669-3900 Monday through Friday, 9 a.m. to 5:30 p.m. ET.
The information presented is for informational and educational purposes only. Content presented is not an investment recommendation or advice and should not be relied upon in making the decision to buy or sell a security or pursue a particular investment strategy.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
TD Ameritrade and H&R Block are separate and unaffiliated companies, and are not responsible for each other's policies or services.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2019 TD Ameritrade.