A Health Savings Account (HSA) is a tax-advantaged medical savings account available to individuals who are enrolled in high-deductible health plans. To learn more about HSAs and how they are tax-advantageous, read our blog on Health Savings Accounts. After understanding the basics of how HSAs work, it is valuable to know about the following six tax-free HSA distributions:
1. “Qualified medical expenses” are more than just doctor bills. In general, they include all things that generally qualify for the medical expense deduction under the Tax Code, such as medical supplies, prescription co-payments, dental care, vision care, and chiropractic expenses.
2. After age 65, you can use your HSA to cover Medicare premiums. However, you cannot use it to cover Medigap premiums.
3. You may withdraw from your HSA to cover qualified medical expenses, even if you no longer have a high-deductible health insurance plan. For example, you cannot contribute to an HSA once you are enrolled in Medicare, but you can keep your existing HSA and take tax-free distributions to cover qualified medical expenses.
4. You are not required to withdraw from an HSA each time you incur a medical expense. You can pay for the cost out of pocket and let your HSA grow. Additionally, you can take a distribution from your HSA to cover a qualified medical expense incurred in a previous year, as long as the expenses were incurred after you established your HSA.
5. Your HSA may be used to pay for your spouse or child’s medical expenses, even if they are not covered under your high-deductible insurance plan.
6. If your spouse is the beneficiary of your HSA, after your death, he or she can maintain the HSA in his or her name and continue to access the funds. Distributions for qualified medical expenses are tax-free.