What is a Health Savings Account?
If you have a high deductible health plan, you’re eligible to open a Health Savings Account (HSA). Keep reading to learn how HSAs work, what they can be used for, and other important information.
How does an HSA work?
A Health Savings Account (HSA) is a type of personal savings account. However, there are certain rules for opening and using an HSA that don’t apply to regular savings accounts. Here’s what you need to know:
- You must be enrolled in a High Deductible Health Plan to open an HSA.
- HSA funds can only be used for qualified medical expenses.
- The IRS sets annual HSA contribution limits for self-only or family coverage.
- If you are age 55 or older, you can make an additional “catch-up” contribution.
- Once you reach a certain balance threshold in your HSA, you may be able to accrue interest. At American National Bank, interest on your HSA account is accrued daily and credited quarterly.
- HSAs offer triple tax advantages: your contributions are untaxed, interest compounds tax-free, and withdrawals are also untaxed as long as they’re used for eligible expenses.
- There is no “use it or lose it” rule for HSAs. You can use funds for current medical costs or save for future needs. Your balance always belongs to you, even if you switch jobs.
How can an HSA be used?
You may be wondering what counts as a “qualified medical expense.” While you can find a complete list online, it’s helpful to know that HSA funds can be used for a variety of medical, dental, prescription, and other health-related expenses. For example:
- Doctor’s visits
- Dental treatments
- Prescription drugs
- Over-the-counter medicines
- Menstrual products
- Eye exams, glasses, and contacts
- Ambulance expenses
- Hearing aids
- Therapy
- Hospitalization
- Addiction treatment
- Long-term care services
- Acupuncture
- …and more!
What happens if you use your HSA for an unqualified payment?
You actually can use your health savings account for unqualified expenses, but there’s a catch if you’re under 65 years of age. You’ll have to pay income tax on ineligible withdrawals; plus a 20% penalty. Once you’re 65 years or older, you’ll have to pay income tax on unqualified expenses, but there is no additional penalty. Qualified distributions remain untaxed.
Open a Health Savings Account today!
Learn more about our HSA and other savings accounts in Virginia and North Carolina. You can open a new account online or schedule an appointment at one of our branch locations.