I've personally had a high-deductible policy since I graduated from college and I can tell you that it certainly makes you think more like a consumer. Because other policyholders are doing the same thing, it helps keep the overall costs and premiums down.
This is the right way to remove funds from an HSA account, paying for or reimbursing qualified medical expenses.
For additional financial tips and insights, follow Financial Finesse on Twitter and become a fan on Facebook. Are you looking for an unbiased answer to your own financial question? Need help keeping track of your HSA throughout the year? I get my albeit very basic annual physicals done by a very competent nurse practitioner instead of by a more expensive physician.
Some HSAs allow you to pay bills for doctors, hospitals, and specialists through an online bill paying feature.
However, you may have gotten the benefit of tax free investment earnings on that money for many years. Not even your 401 k lets you do that. When you file your IRS Form 8899 , you will have to call out this amount on Line 16 as a taxable distribution. I only update my contact lens prescriptions when they expire or need updating, not every time I happen to be in the optometrist's office for a routine checkup it costs extra for the prescription.
Remember, you can spend HSA funds on other people than just yourself. It essentially becomes a tax-deferred retirement account at that point like a traditional 401 k or IRA.
Since this is a qualified medical expense, you are immediately entitled to reimburse yourself for that expense out of your HSA. In 10 minutes, it asks you simple questions that correctly populates Form 8889 no matter your situation and delivers you the completed PDF. Knowing that you're financially liable for your health care costs can encourage healthy living.
Read More. Unlike an FSA flexible spending account , the good news is that your unused HSA money can be rolled over to the following year. You must self-report any non-qualifying purchases.
What happens when I file my taxes? Note that any distribution for non qualified medical expenses will be taxed just like ordinary income , but at least you are getting the funds out of your HSA.Eligible Expenses: What Expenses are Eligible with an HSA, FSA or HRA?
There's a good chance you'll have enough future health care costs for all that growth to be tax free. Nor does it factor in the Medicare cuts that have been proposed to keep the program solvent. An expensive option, but at least you can get the funds out of the HSA.
There's also a quirk in how HSA withdrawals are treated that makes this strategy even more appealing.
This can give them the best of both worlds: HSAs don't just benefit your wallet though. Like a pre-tax 401 k , these contributions aren't taxable, whether made by the employer or the employee.