A Health Savings Account (HSA) enables you to save, invest and spend funds for qualified medical expenses on a tax-advantaged basis. Unlike a Health Flexible Spending Account (FSA) “all unused” funds roll over from year to year. HSA eligibility requires you to be covered by a qualified High Deductible Health Plan (HDHP) with minimum required deductibles. Eligibility, as outlined by the IRS, also states that you cannot be covered by another non-qualified healthcare plan, such as a health plan sponsored by your spouse’s employer, Medicare or TriCare and that you cannot be claimed as a dependent on another individual’s tax return.
As you decide how much to contribute, you should decide if you want to use this plan for annual health care expenses or as a tax advantage for a long-term savings towards your health care expenses. The IRS limits contributions based on whether you are enrolled in an individual or family-tiered medical plan. Keep in mind that HSA contribution limits established by the IRS may change each year and you must not over contribute to avoid adverse tax consequences.
Upon enrolling in a HSA plan, you are still eligible for a Health FSA participation, however this is restricted to dental and vision expenses (Referred to as a Limited-Purpose Health FSA) or post-deductible medical expenses.
Qualified medical expenses are those directly related to the alleviation or prevention of physical or mental illness. Expenses generally can be for yourself, your spouse, or your dependent children, regardless if they are covered by your health plan. HSA funds can be used to pay for qualified medical expenses such as: Medical Care, Vision expenses, Physicals, Deductible Expenses, Dental expenses, Prescriptions, Chiropractic care, Medical Equipment, and certain Healthcare Premiums (Cobra, LTC, and Medicare plans).
The tax advantages of an HSA make it a powerful long-term savings vehicle.