![]() ![]() You can only do this if you delay reimbursing yourself for previous medical expenses you paid out of pocket for. Your HSA can also function as a backup emergency fund, letting you withdraw tax-free cash when you really need it. Since this is a qualified medical expense, you can reimburse yourself tax-free for the cost of the appointment with your HSA funds. Use for qualified medical expensesĪssume you have a doctor's appointment that you pay for out of pocket using a credit card, debit card, or cash. It might hurt for a minute - but making a larger contribution late in the year is way better than paying taxes (up to 40% for some) on that money. This is a big advantage over accounts such as 401(k) which are more tightly "locked," and have a penalty for most cash withdrawals.Īt the end of the tax year, you have a choice of making a lump sum transfer to your HSA for that year's contribution. Granted, this isn't the most ideal investment strategy, but hey, emergencies happen. ![]() If you end up needing the money you've put aside for non-qualified expenses on a regular basis, consider lowering your contribution to your HSA until you have a better handle on your monthly bills.Īlso, if you build HSA credits for unreimbursed medical expenses, it becomes a source of emergency funds. One item to keep in mind: If you're over 65, this penalty is waived - one of many reasons we view HSAs as a great long-term savings vehicle, as you'll only owe income taxes on non-qualified withdrawals.īut life happens. If we revisit the same example, that comes out to $400 in taxes and fees, leaving you with just $600 of the $1,000 you originally wanted. ![]() On top of the taxes above, there's another 20% penalty for non-qualified withdrawals. Let's say your tax rate is 20% and you withdraw $1,000 for that new TV - you'll also have to pay back $200 in taxes! Taxes, taxes… The HSA money you take out will be added back to your gross income. In other words, using your account for non-qualified expenses means the taxes you skipped when contributing to your HSA, come back to haunt you - often at a (very) steep price: Still, here are three options for withdrawing money from your HSA: Non-qualified withdrawal (with a penalty) And because of that, the government doesn't look fondly at not playing by the rules (however badly you wanted that TV). The catch is, this money can only be used for qualified medical expenses, as we mentioned earlier. Part of the advantage of an HSA is that you can save significantly on taxes by contributing to the account. Those are good for your health right? You might want to take your money out of your HSA and use it to fulfill your high-def dreams.īut, before you go to the ATM and empty out your HSA funds, be careful - there may (and probably will) be tax consequences to withdrawing money. Who doesn't want to have a little stash of cash for a rainy day? And maybe that rainy day involves buying a new 4K flat-screen. NOT Qualified: Insurance premiums (because most are not eligible under your HSA), cosmetic surgery, weight loss programs, health club memberships or other services that are considered beneficial (but not required) for general good health, like every-day vitamins or spa getaways (as much as we'd want them to be). Also qualified are prescription medication and personal medical devices like contacts, hearing aids and more. So, any product or service billed by a doctor/hospital/urgent care, optometrist, chiropractor, dental clinic (excluding cosmetic) including copays for those visits are all qualified. Qualified: Qualified medical care expenses must be for products or services designed to alleviate or prevent a condition or illness. Our Eligibility List is the most-updated one of its kind, but for definitive answers, it's good to always check. Still, there are still a lot of "gray areas" when it comes to eligibility. While the list changes, if your need falls within common definitions of "medical care," it's worth checking with your plan administrator (can be found on the back of your HSA card or by speaking with your employer) to see if the product or service is HSA-eligible. The truth is, the IRS has been pretty accommodating when it comes to qualified medical expenses. Pain-relieving foot circulator = yes.Īny transportation needed for medical care - yes, even taking a Lyft to the doctor - is also qualified. And if it's truly for "medical care," then it'll be qualified to buy with your tax-free HSA dollars. According to the IRS, the term "medical care" means anything used for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. ![]()
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