Three Benefits of HSAs You Should Know
As a Benefits Coach, I’ve seen that more and more employers are offering High Deductible Health Plan (HDHPs) as part of their benefit selections. The HDHP gives employees the options of a lower premium than standard health plans, in addition to the option of opening a Health Savings Account (HSA). In my experience answering people’s questions about HSAs, I’ve found that even though HSAs are fairly common, there are still benefits to the HSA that many people are not aware of.
If Your Expense is not Specifically Listed on IRS Publication 502, You Can Have Your Doctor Vouch for the Medical Necessity of the Expense
IRS Publication 502 is the official document listing all HSA-eligible expenses. But what if your medical expense isn’t listed? This is a common question for HSA holders, and the good news is that your expense can be considered HSA-eligible if your doctor writes a letter of medical necessity (LMN) or a prescription for the expense.
Since Over-the-Counter drugs are not specifically listed on Publication 502, they are a common example of when an account holder would want to get a prescription from their doctor so they can use their HSA funds on the expense. Other HSA users I’ve talked to have had their doctors and dentists write LMNs or prescriptions for diverse medical treatments such as trigger point massage therapy for a pinched nerve, an electronic toothbrush to help treat gum disease, and nasal breathing aids for a deviated septum.
Remember to save your prescription or LMN along with your receipt for the expense in the case of a random IRS audit.
There is No Time Limit for Reimbursing Yourself from Your HSA
Some people have the misconception that you must reimburse yourself within a year of the expense or even that it must be done within the same year. This is not the case. In fact, there is no time limit at all to reimburse yourself.
For a larger HSA-eligible expense that you pay for out of pocket, it may take some time to build your HSA balance up to that amount in order to be able to reimburse yourself. That’s okay, because even if it takes you two years, five years, or even 10 or more years to accumulate your HSA funds, you can still reimburse yourself for the expense and see the full tax savings!
Once You Turn 65, You Can Use Your HSA Funds on Anything Without Incurring the 20% Penalty
Since funds deposited into an HSA are specifically designated for medical, dental, vision, and prescription expenses, there is a fairly hefty 20% penalty if you use your funds on expenses that are not considered HSA-eligible. You’ll also owe regular taxes on those misspent funds as well, so it can be costly.
However, just like with your 401-K, when you turn 65 the 20% penalty no longer applies. It is important to note that if you do use HSA funds for non-HSA eligible expenses after age 65, you will still be subject to regular taxes on that money. The benefit is that you will only be taxed at your current tax rate for the year the money is spent, which is typically a lower rate for most retired people as compared to their tax rate during their working years. This benefit allows retired people the ability to make their money go further in their retirement so they can better enjoy their golden years.
If your employees need a little help with using their HSAs, please share this: 2018 Guide to Using Your HSA.
Categorized in: HSA