Health savings accounts are worth a look, although they are not for everyone.
If you are covered by a qualified high-deductible health plan, you can contribute pretax income to an employer-sponsored health savings account or make deductible contributions to an HSA you set up through a brokerage firm. Qualified plans have an annual deductible of at least $1,350 for an individual or $2,700 for a family, according to Healthcare.gov.
A health savings account is an investment account, which can bear interest or be invested in the markets, similar to an IRA.
Here’s the upside: Withdrawals for qualified medical expenses are tax free, and you can carry over a balance from year to year.
The IRS in March 2018 issued guidance for 2018 HSA contributions of $3,450 for individuals and $6,900 for those with family coverage ($7,900 for HSA owners age 55 or older), according to the Isdaner & Co. accounting firm in Bala Cynwyd, Pa.
One drawback: If you are enrolled in Medicare, you can’t contribute to an HSA. However, you can create one before you enroll in Medicare and still take tax-free money out for qualified medical expenses.
IRA adviser and tax expert Sarah Brenner created a helpful list of all the things you can pay for using money withdrawn tax-free from your HSA:
• Qualified medical expenses, including doctor and hospital bills, medical supplies, prescriptions, co-payments, dental care, vision services and chiropractic expenses.
• Your spouse or child’s medical expenses, even if they are not covered by your high-deductible health insurance plan.
• Medical expenses in a previous year, as long as expenses were incurred after you established your HSA. That means you do not have to withdraw money from an HSA every time you have a medical expense. You can pay out of pocket, and let your account grow, or reimburse yourself in a later tax year.
• Qualified medical expenses incurred even after you no longer have a high-deductible health plan.
• Certain Medicare insurance premiums after you turn 65, but not Medigap premiums.
Not everyone is a fan of HSAs, including investor Lisa Hastings.
“People who hawk these often forget to say that HSA plans only come with very high-deductible health insurance,” she said. “For people who actually go to the doctor or have regular medications, they are a waste of money.”
Erin Arvedlund writes for the Philadelphia Inquirer.