Answering Common Questions About HSAs (Health Spending Accounts)

Sep. 11

Health Spending Accounts (HSAs) have become increasingly popular as a means to save for medical expenses while enjoying certain tax benefits. However, many people still have questions about how HSAs work, their eligibility requirements, and what expenses can be covered. At Grand River Financial Solutions, we're committed to helping you understand HSAs and how they can fit into your financial planning. Below, we address some of the most common questions about Health Spending Accounts to provide you with the knowledge you need to make informed decisions about your finances.

What Is A Health Spending Account (HSA)?

A Health Spending Account (HSA) is a tax-advantaged savings account designed to help individuals save for qualified medical expenses. HSAs allow you to set aside money that can be used for out-of-pocket health costs, making them a beneficial tool in managing health care expenses. The key features of HSAs include:

Tax Deductions: Contributions to an HSA are tax-deductible, reducing your taxable income for the year.
Tax-Free Growth: Any interest or investment income earned on the funds grows tax-free.
Tax-Free Withdrawals: Funds withdrawn to pay for qualified medical expenses are not subject to tax.

By utilizing an HSA, individuals can effectively manage their health care expenses while avoiding taxation that can reduce their ability to manage them.

What Are The Eligibility Requirements For A Health Spending Account (HSA)?

To qualify for an HSA, certain criteria must be met. Generally, you must:

Be Enrolled in a High-Deductible Health Plan (HDHP): Your health plan must meet specific CRA-defined deductible and out-of-pocket maximum limits.
Not Be Covered by Another Health Plan: You cannot be covered by another non-HDHP insurance, including a spouse's plan, unless it is specifically compatible with HSA contributions.
Not Be Eligible for Medicare: Individuals who are enrolled in or eligible to be enrolled in Medicare cannot establish HSA accounts. Medicare and similar government programs are a valuable alternative if you are eligible and unable to get an HSA.
Not Be Claimed as a Dependent: You cannot be claimed as a dependent on someone else’s tax return.

Frequently Asked Questions About HSA (Health Spending Accounts)

Can You Get An HSA If You Don’t Have Private Insurance?

Yes, you can open an HSA even if you do not have private insurance, as long as you are enrolled in a qualified high-deductible health plan. The key aspect is that an HDHP must be in place to access the benefits of an HSA. Government programs like Medicaid or Medicare don't qualify for HSA contributions.

How Do You Know If You Have a High-Deductible Health Plan?

To determine whether you have an HDHP, check the following:

Deductible Amount: For 2024, the minimum deductible for an HDHP is $1,600 for individuals and $3,200 for families.
Out-of-Pocket Maximums: The maximum out-of-pocket expenses for an HDHP in 2024 are $8,050 for individuals and $16,100 for families.
Plan Documents: Review your health insurance policy or speak with your benefits administrator for detailed plan specifications.

Familiarizing yourself with these details can help ensure that you know whether your plan qualifies for HSA contributions.

Do All High-Deductible Plans Qualify for HSA?

Not all high-deductible plans automatically qualify for HSA contributions. To be eligible, your HDHP must meet CRA requirements for both deductibles and out-of-pocket maximums. Always check the specifics with your health insurance provider to verify that your plan qualifies.

Can I Have Too Much Money in My HSA?

While there is no limit on how much money you can have in your HSA, there are annual contribution limits. For 2024, these limits are:

$3,850 for individuals
$7,750 for families
Additional $1,000 catch-up contribution for those aged 55 and older

Although these funds can and will stay in your account, the excess funds you contribute are subject to tax penalties.

Why Is My HSA Being Taxed?

HSAs generally offer tax-free growth and withdrawals, but certain situations can trigger taxes:

Excess Contributions: Any amount contributed above CRA limits may be subject to income tax and penalties.
Non-qualified Withdrawals: If funds are withdrawn for non-qualified expenses, those amounts will be taxed as regular income and may incur an additional penalty.

Maintaining careful records of your contributions and withdrawals can help you avoid unexpected tax implications. Consider whether the CRA taxed a withdrawal, for example, mistakenly.

Can I Take Money Out of My HSA and Put It Back?

Yes, you can withdraw money from your HSA and, under certain circumstances, recontribute it. However, any contributions must adhere to the annual limits set by the CRA, and you will need to ensure that you are making these adjustments within the correct tax year to avoid penalties.

Can You Use HSA for Dental?

Absolutely! HSAs can be used for a variety of qualified medical expenses, which include dental care. Expenses such as dental cleanings, fillings, braces, and orthodontic treatments are eligible. Couples and families with dental expenses can thus benefit significantly from leveraging their HSAs for dental payments.

What Is Not Eligible For HSA?

Common ineligible expenses to use your HSA for include:

Cosmetic surgeries
Non-prescription medications
Health insurance premiums (with a few exceptions)
Expenses incurred before the HSA was established

It’s essential to stay informed about what your HSA funds can and cannot cover to ensure proper use.

Can HSA Be Used for Insurance Premiums?

In general, HSAs cannot be used to pay health insurance premiums. However, there are specific situations where HSA funds can cover premiums:

COBRA coverage
Long-term care insurance
Health care premiums for those aged 65 and older

Always verify with a tax professional regarding your specific situation to ensure accurate usage of HSA funds.

Do HSA Accounts Earn Interest?

Yes, HSAs typically earn interest. Most HSAs are coupled with interest-bearing accounts, and some allow you to invest funds in mutual funds or other investments for potentially greater growth. Review your HSA provider's policies to understand the kind of interest and investment options available to you.

Can You Get Money Back from an HSA?

Generally, any funds withdrawn from an HSA cannot be refunded into the account once they are taken out. However, if you have inadvertently used HSA funds for non-qualified expenses, addressing this with your account custodian may offer avenues for correction, but it depends on specific circumstances.

All Questions Answered With Grand River Financial Solutions

At Grand River Financial Solutions, we strive to provide our clients with the insights they need to make informed decisions regarding their health savings. We understand that a Health Spending Account (HSA) can be complex and overwhelming to manage, but we are here to make it easier for you.

Our team of financial advisors is dedicated to guiding you through your health care financing options to help maximize your savings and investments. Whether you’re just starting to explore HSAs or are looking to enhance your financial strategy, we can assist you in achieving your health care financial goals.

Elie GRFS