Maximize Benefits with Tax-Free HSA Distributions
Health Savings Accounts (HSAs) continue to grow in popularity. These accounts provide significant tax advantages for individuals with qualifying high-deductible health plans. Contributions to an HSA are deductible, and distributions for qualified medical expenses are tax-free. Understanding how to take tax-free HSA distributions helps you make the most of this financial tool.
What Are Qualified Medical Expenses?
Qualified medical expenses extend beyond routine doctor visits. These include costs that typically qualify for the medical expense deduction under the Tax Code. Tax-free HSA distributions cover a variety of expenses, such as:
- Doctor and hospital bills
- Medical supplies and prescription co-payments
- Dental care, including cleanings and fillings
- Vision services like eye exams and glasses
- Chiropractic care
You can also use HSA funds to pay for your spouse or child’s medical expenses, even if they are not part of your high-deductible health insurance plan.
Reimbursing Expenses from Previous Years
HSA distributions do not need to match the timing of your medical expenses. You may reimburse yourself in future years, as long as the expenses occurred after the HSA was established. This approach allows the account to grow while you cover costs out of pocket. For example, you can take a tax-free distribution in 2024 to cover medical bills from 2022, provided the expenses meet the qualifications.
Even if you no longer have a high-deductible health plan, you can retain your HSA. Distributions for qualified medical expenses remain tax-free for you, your spouse, and your dependents.
Special Benefits at Age 65
Once you enroll in Medicare, contributions to an HSA stop. However, the account remains active, and tax-free distributions for qualified medical expenses continue. Additional benefits become available after age 65:
- Use HSA funds to pay Medicare premiums, excluding Medigap coverage.
- Insurance premiums not typically covered by HSAs qualify for tax-free payments after Medicare enrollment.
These benefits provide flexibility for managing healthcare costs in retirement.
Spouse HSA Beneficiaries
If your spouse is the beneficiary of your HSA, they can maintain the account after your death. The HSA continues in their name, allowing them to take tax-free distributions for qualified medical expenses. This provision makes HSAs a valuable tool for long-term healthcare planning.