If you manage to qualify for a Health Savings Account or HSA then you may be wondering how you can use the money. Remember that you first need to have a High Deductible Health Plan in order to even think about setting up your HSA, or else you will need to set up a Flexible Spending Account or FSA.
The great thing about the Health Savings Account is that you can actually use the money for basically anything you like. OF course you will only get the benefits of the tax savings if you use the money for qualified medical expenses but it is good to know that in an emergency you can use for other things as well.
When you use the money in your Health Savings Account for medical expenses you get to use that cash tax free. Some of the qualified expenses are as follows:
-amounts towards your deductible
-amounts for your co-pays
-vision or dental bills not covered under your current insurance
Once the money is used to pay for one of these then you do not have to pay taxes on the qualified amount used. If you do use the money for an expense that is not qualified then you will have to pay taxes on the amount used.
How long can I keep the money?
You can keep the money in your Health Savings Account until it runs out!!! Unlike with the Flexible Spending Account where you have to use the money before the end of the year or you forfeit it, you can roll any unused amounts in your Health Savings Account over to the next year and all following years.
What if I lose my job?
Even if you lose your job and subsequently your High Deductible Health Plan, which allowed you to get the Health Savings Account, you can still keep your account. You just will not be able to make any more contributions towards the account, but any balance that is in there is yours to keep and use until the money runs out…or you get another Health Savings Account and transfer the money into that .
Remember that money stays in your account and grows tax free for as long as you have a balance in the account. You can keep reimbursing yourself for future medical costs for as long as you wish or you can pay the costs directly out of the account..just remember to keep your records for tax purposes!!!!
What is the penalty for unqualified use?
If you do end up using the money for expenses that do not qualify then you have to pay taxes on that amount. If you use the money before you turn 65 then you have to pay an additional 20% penalty on top of the tax amount. Be safe and use your HSA money for MEDICAL expenses!!!