HSA Myths That Cost You Money
US friends, how much do you know about HSA myths that cost you money? A health savings account (HSA) allows you to pay healthcare expenses by using pretax earnings you’ve set aside.
What you may not know are all the rules regarding HSAs. They are complex and if you don’t have a firm understanding of them, you may be leaving money on the table. You can get hit with monetary penalties, which is worse.
Read on to discover which HSA myths that cost you money!
Myth: Money you contribute to an HSA won’t earn any interest.
The Truth: It’s up to you.
It’s true that most HSA accounts are at credit unions or banks earning no interest, or are at vendors that don’t pay any interest on cash balances. You can invest your HSA in the market once a certain balance is reached. A lot of people don’t realize this!
If your employer doesn’t offer an HSA provider that gives investment options, you also have the option of setting up an account with one of the many HSA account providers that do.
Myth: After using non-HSA money to pay for medical expenses, there’s a time limit for reimbursing yourself from an HSA.
The Truth: There is absolutely no deadline on taking HSA reimbursements.
If the HSA was open at the time you received the healthcare expense, you can use money from the account to pay the healthcare expense using pretax HSA dollars. You can even do this years after the initial expense is incurred.
Here’s an example: Say you have recently opened an HSA and have just $350 in it. You unexpectedly require a surgery that results in $5,000 out-of-pocket costs. You can pay your medical expenses using your regular savings account. Then you can make pretax contributions to your HSA for months, or years before reimbursing yourself from the HSA. You can even reimburse yourself all at once or in stages, it’s up to you.
Myth: Receipts for HSA expenses must be saved.
The Truth: Submitting proof of what you spent your HSA funds is not a requirement.
You may find that having your receipts on hand makes it easier on you in the long run. This helps to ensure the expenses you incurred are reimbursed (you can also upload them to your HSA account provider), but there’s no requirement to tell the IRS about how you spent your HSA funds.
Myth: You can no longer use HSA funds after signing up for Medicare.
The Truth: You can no longer make any new contributions to an HSA if you’ve been enrolled in Medicare. Though, you can use the money already in the account.
Prescription drug copays, out-of-pocket medical expenses and any eligible costs that are not covered by insurance. Like vision, dental care and hearing. It all can be paid using the money that was already in your HSA account prior to Medicare enrollment. Still tax-free.
Myth: The end of the year is the deadline for contributions to an HSA.
The Truth: HSA account providers give you until the tax filing deadline. This is usually April 15th of the current year, to continue funding your HSA.
If you contribute to your HSA by deducting pretax money from your paycheck, that withholding period most likely ends on December 31. However, you can still contribute to your HSA on your own until the tax deadline. Though, you cannot get an extension on this deadline even if you do receive one to file your tax returns.
Being able to contribute to your HSA until the tax filing deadline can be particularly helpful. Especially if you want to maximize contributions. Though keep in mind the funding limits.
If you do pay into your HSA on your own, instead of through payroll deductions, the money won’t be subject to income taxes but will be subject to Medicare and Social Security taxes.
Note: The amount you can contribute for a particular tax year is limited. For 2019, funding limits were:
- Individuals: $3,500
- Families: $ 7,000
- Adults 55+: an additional $1,000 is allowed
Myth: HSA contributions can only be used for healthcare costs.
The Truth: You can use your HSA contributions on anything you want.
If you spend on non-medical expenses, a tax penalty and a tax may apply if you’re under 65. Those 65+ aren’t subject to a penalty but their money will still be taxed as well. An HSA resembles a 401K when considered in this light. It can help calm those concerned with over-funding their accounts.
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By knowing the HSA rules, you protect yourself from these commons HSA myths that can be quite costly.
Do you have any additional tips?
Let me know, til then–cheers m’deres!
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Nancy Polanco is a freelance journalist, lifestyle content creator, and editor of Whispered Inspirations. She is a proud Mom to Gabby and Michaela. Having worked as part of a health care team for almost a decade, Nancy is happy to be back to her passion. She is a contributor to the Huffington Post, TODAY’s Parents, and an Oprah Magazine Brand Ambassador.