What is HSA and when to spend it

Opening a health care savings account can help people cover their out-of-pocket costs. People can use these unique, tax-advantaged accounts to pay for current or future healthcare expenses for you, your spouse, and your dependents. When combined with a high-deductible healthcare plan, people can receive tax advantages to save money in the long-run.
If you are looking to save money while taking care of your oral health, a health care savings account, HSA, can help. Our team at 75th Ave Dental Studio can help you learn more about HSAs and other coverages.

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Understanding Health Care Savings Accounts

A health savings account (HSA) is a savings account that lets people set aside money on a pre-tax basis to pay for qualified medical expenses. An HSA is complementary to a health care plan that has a high deductible. People can save money in an HSA before taxes and use the funds to pay for eligible health care expenses, including expenses the health plan does not cover. For example, people can use their HSA savings to cover health care costs until reaching the plan’s deductible.
People can use their HSA funds to pay the copayment until reaching the out-of-pocket limit. Taxes do not apply to the money put into an HSA. Patients can invest a portion of the money in an HSA if maintaining a balance of $1,000 or more. For this reason, many people use part of their HSA to save for retirement.


HSA Pros and Cons


HSAs offer several benefits. People can withdraw money to pay for procedures, deductibles, copayments, or other medical expenses. Any money left in the account at the end of the year will roll over into the next year. Even if a person’s health care coverage changes due to a change in jobs, as long as they continue with a high-deductible plan, funds in the account continue to grow, tax-free. If a person changes jobs, they can enroll in a new healthcare plan and maintain access to their existing HSA, even if the new healthcare plan does not qualify. Additionally, most people can use a debit card or checks to access their funds easily.


HSAs also have some disadvantages that people should consider. One of the biggest downsides to an HSA involves the requirement to have a health insurance plan with a high deductible. Although this coverage offers lower premiums, high deductibles often become hard to come up with if facing a significant medical issue. With increasing costs of health care premiums and deductibles, it may be challenging to add more money to one’s health savings account. Some people with high deductibles hesitate to see the doctor to seek treatment due to the high costs. They may feel as if they must keep the money in their HSA to save for retirement — thus putting off important medical care.


HSA Tax Benefits

One of the greatest benefits of opening an HSA is its lower tax liability. Lowering tax liability with an HSA allows people to keep more of their paycheck each year and give less to the IRS. Benefits of opening and contributing to an HSA include:

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The money contributed to an HSA is not taxed. Some people set their accounts up so that contributions are automatically taken out of their pay each month. The HSA withdraws the contribution before taxes, so it does not count as income and lowers the yearly tax liability.


An HSA account can earn interest. Earnings on an HSA account are also tax-free. The larger an HSA balance is, the more tax-free earnings it can get.


When it is time to use a portion of the HSA account, withdrawals are also not taxed. People can use their withdrawals for any type of qualifying medical expense. There is no need to time medical expenses by the calendar since an HSA does not need to be spent by the end of the year.


Treatments Covered by an HSA

Dental services and HSA eligibility can vary; however, some common and necessary dental procedures are eligible. HSAs cover treatments that diagnose, treat, mitigate, cure, and prevent disease. HSAs cover most dental treatments deemed medically necessary, such as:

    Regular cleanings and routine visits
    Root canals
    Dentures and bonding

Even with an HSA, there may be a copayment for the patient. HSAs do not cover cosmetic dental treatments such as teeth whitening or regular dental expenses, such as toothpaste, toothbrushes, dental floss, and mouthwash.


Frequently Asked Questions

  • Is an HSA right for me?

    For people with HSA-eligible health insurance plans with a high deductible, an HSA plan can offer many benefits. With tax advantages and the ability to save for retirement, an HSA account offers long-term growth potential. It is an excellent way to save on health and dental costs through retirement.

  • Can I have more than one HSA?

    Yes. People can open and contribute to as many HSA accounts as desired. Annual IRS contribution limits may still apply to the total amount contributed to HSA accounts. For people with an HSA through their employer, contributions made by the employer count toward the limit.

  • Can I use my HSA on my spouse and dependents?

    Yes. The HSA holder, spouse, and eligible dependents can all use the HSA money for qualified medical expenses. This can happen as long as everyone meets the eligibility requirements, and the account owner has authorized each of them by requesting an additional HSA debit card in their name.

  • Am I eligible for an HSA?

    The IRS has defined some eligibility requirements to qualify for an HSA. Eligible participants must have health insurance under a qualifying high-deductible health plan (HDHP), no other health coverage, no enrollment in Medicare, Tricare, or Tricare for Life. In addition, they cannot be claimed as dependent on someone else’s taxes, not receive veteran’s benefits within the last three months, and not have a health care flexible spending account (FSA) or health reimbursement account (HRA). These requirements may be subject to change.

  • What are the differences between an HSA and FSA?

    Though similar, HSAs and FSAs have some differences. The most significant difference between the two is that not everyone qualifies for an HSA. Only those with a high deductible qualify. FSA remains available to anyone, regardless of their deductible. The max contributions differ for the two accounts. HSAs typically have higher max annual contributions. One of the biggest benefits of an HSA is that it allows any remaining balance to roll over to the next year.

  • What are some examples of qualified medical expenses for a healthcare savings account?

    HSA withdrawals are only tax-free when spent on qualifying medical expenses. These include out-of-pocket expenses for doctor visits, medical procedures, co-pays, dental costs, vision care, medications, and feminine hygiene products. The expenses can be for the individual, a spouse, or a dependent.

  • How much can I contribute each year to my HSA?

    Each year, the IRS sets a limit on the amount of money someone can contribute to an HSA. For 2021, the limit for an individual is $3,600, and for a family, it is $7,200. Individuals over the age of 55 can contribute an additional $1,000 each year as a catch-up contribution.

  • What is a high-deductible health insurance plan?

    To qualify for an HSA, an individual must be participating in a high-deductible health plan. With these, the individual is responsible for paying a certain amount before the health insurance company steps in and starts covering expenses. The deductible needs to be at least $1,400 for an individual plan or $2,800 for a family plan.

  • What are the penalties for withdrawing funds for ineligible purchases for an HSA?

    There is a penalty when using an HSA to pay for things that are not qualifying medical expenses. First, you have to pay taxes on that money as it now counts as income. Next, if you are younger than 65, you are charged another 20% penalty on the funds. To avoid this, do not withdraw HSA funds for non-medical expenses.

  • Who else can contribute to my HSA?

    Some employers also make contributions to their staff's HSA plans. If your job contributes to your HSA, be sure that you do not go over the IRS contribution limit. Excess contributions will result in a 6% tax penalty.