Health savings accounts (HSAs) are tax-advantaged vehicles for individual investors to pay for common and emergency medical expenses. In many ways, HSAs incorporate the most favorable elements of other self-directed retirement plans:
You must have single or family coverage through a high deductible health plan (HDHP) to yield the benefits of an HSA. Your deductible counts as a qualified medical expense and may therefore be covered by HSA funds.
|Tax Year||Annual Contribution Limit |
|Annual Contribution Limit |
|Catch-Up Contribution |
(age 55 or above, any HDHP)
You can make a contribution to a new HSA for a given tax year if you open the account prior to April 15th the following calendar year. However, HSA funds may not be used to cover qualified medical expenses incurred prior to the account opening.
|Step 1:||You're in a car accident in December 2017 and have to pay a hefty hospital bill. You also find out that you'll need physical therapy to recover from your injuries. To help offset these expenses, you open an HSA in January 2018.|
|Step 2:||You're enrolled in a family HDHP, allowing you to contribute $6,900 for the 2018 tax year. You also have until April 15th to contribute $6,750 for the 2017 tax year, even though your HSA was not open during the 2017 calendar year.|
|Step 3:||You cannot pay the medical bills you incurred in December 2017 with the HSA you established in January 2018. However, your combined contributions ($13,650 in total) could go a long way toward covering your ongoing physical therapy.|
|Result:||You'll have to pay for physical therapy no matter what. By applying your HSA contributions toward that qualified medical expense, you'll never pay income taxes on your $13,650 deposit (tax-deferred upon contribution, tax-free upon distribution).|
|Tax Year||HDHP Minimum Qualified Deductible||HDHP Maximum Qualified Out-of-Pocket Exposure|
|2019||Single: $1,350 |
|Single: $6,750 |
|2018||Single: $1,350 |
|Single: $6,650 |
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