A health savings account (HSA) is a fantastic way to prepare for unplanned medical expenses. It’s a unique tax-advantaged account that functions similarly to a retirement account. You can fund it up to annual contribution limits and generate growth every year.
However, you also benefit from using the tax-free funds to pay for qualifying medical expenses. But what are the allowed expenses for an HSA?
Medical Expenses
You’re free to use an HSA for any medical expenses. It’s a great way to cover insurance deductibles or unexpected costs that may arise. You can use HSA funds to pay for anything that would qualify for a medical and dental expenses income tax deduction outlined in IRS Publication 502.
Depending on your HSA plan, you may also use it for the medical expenses of tax dependents. That includes children and your spouse. However, you can only do so if the medical expense is not otherwise reimbursed.
What About Elective Surgery, Optometry Services, and Dental?
Dental, contacts, eyeglasses, and even LASIK surgery are all allowed expenses for an HSA. These expenses don’t apply to your insurance deductible, but you can pull from your HSA to cover costs.
That’s not the case with elective surgery. Whether cosmetic or otherwise, you cannot use HSA funds unless your surgeon deems the procedure medically necessary.
How Much Can You Contribute to Your HSA?
Like traditional retirement plans, there are limits to how much you can contribute to your HSA each year. The amount can fluctuate from year to year. In 2022, the limit for individuals is $3,650. For a family HSA, you can contribute up to $7,300.
What Happens If You Use HSA Funds for Non-Medical Expenses?
Technically speaking, you’re free to pull your HSA money for any reason. It’s your money, and you can use it for non-medical expenses if you want to. However, doing so will eliminate the tax advantage and may cost you a penalty.
If you’re younger than 65, you’ll be taxed the amount you withdraw plus a 20 percent penalty. If you’re 65 and older, you won’t have to pay the 20 percent penalty, but you will still pay taxes on any non-medical expense.
Author Resource:-
Daniel Stewart has been helping people with their money management and personal finance with over 15 years’ experience in business finance. You can find his thoughts at HSA strategy blog.
