In my humble opinion, the HSA is highly underrated and underused by many here in America. The more I look into this gem of a product, the more excited I get about contributing to it. We upped our contributions to our HSA this year because one of the kids needs braces and I want to make sure we deduct every bit of our out-of-pocket costs for those things. We’re working to maximize tax deductions, especially while the kids can still be counted as dependents. So that got me thinking; What can I pay out of my HSA? What other regular purchases do we make that we can be purchasing with HSA funds so that we can minimize taxable income?
The benefits of HSAs are many. Read them over and see how you can better use an HSA to prepare yourself for medical expenses now and in the future.
Your Contributions Are Tax Deductible
Yep. Up to $3400 for yourself, and a total of $6750 for your family for the year 2017. And if you’re over age 55 you can make (and deduct) an additional $1,000 as a “catch-up” contribution. Another bonus? As with IRAs, you can make contributions for the previous tax year up until tax day on the current tax year. In other words, you can make 2016 HSA contributions up until April 15 of 2017.
Contributions are “Rollover-able”
You can keep HSA contributions in your HSA account year after year until you’re ready to use them. This makes the HSA a great part of a retirement plan, especially if you expect to have high medical costs as you get older.
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Withdrawals From an HSA are Tax-Free
As long as you use them for qualified medical expenses. We get to what is a “qualified medical expense” next.
What Qualifies as HSA Usable?
The list of what counts as a qualified medical expense might be longer than you think. Let’s start with the basics.
Preventive Care, including:
- Annual physicals
- Routine prenatal and well child checkups
- Tobacco cessation programs
- Obesity weight loss programs
- Screening services for all sorts of conditions such as cancer, heart and vascular diseases, infectious diseases, mental health conditions, substance abuse, vision and hearing disorders and more.
Now let’s talk about some HSA qualified expenses you might not have heard about.
- Artificial teeth
- Braille books and magazines
- Breast pump supplies
- Home improvements that are directly related to safety or to make wheelchair accessible but don’t add to the value of the house, such as installing handrails, widening hallways and interior doorways, grading of the landscaping to provide access to the residence and any other modifications that help make the home, cabinets or outlets better accessible to one who might have a handicap of some sort.
- Chiropractic care
- Hearing aids and hearing aid batteries, repair and maintenance
- Fertility enhancements such as IVF or vasectomy reversal
- Service dog purchase and care, including food, grooming, vet visits, etc.
- Lead-based paint removal
- Travel expenses associated with outpatient or inpatient services such as gas and oil for the car, parking and toll fees, hotel stays, etc.
- Pregnancy test kits and birth control pills
- Contacts, enzyme cleaner and contact solution
And a host of other things! For the full publication from the IRS, click here.
Things That are NOT HSA Eligible
There are also several things that do not count as qualified medical expenses for an HSA. Here are a few:
- Babysitting and Child Care
- Exercise lessons if they are only for improvement of general health (some obesity exercise programs qualify)
- Cosmetic surgery and electrolysis
- Hair transplant supplies and services
- Health club memberships
- Non-prescription medicines (with the exception of insulin)
- Nutritional supplements (unless they are prescribed by a physician to treat a specific condition and not for general health improvement)
How to Figure What You Should Contribute to Your HSA
If you’re tracking expenses, this should be easy. Simply go over the last year or two’s medical expenses and add up how much you spent on qualified expenses.
If you haven’t been spend tracking, you’ll have to guess. But make sure you START spend tracking today.
Work to think ahead to all potential upcoming expenses. Do you have annual physicals? Any kids that will be needing braces or eyeglasses? Will you be looking at upcoming surgery for any reason? Are you thinking about quitting smoking?
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Find out the cost of each of the services you’ll be looking at and divide that number by the number of months in the year or the number of months before you’ll be getting the treatment.
In the case of our child’s braces, we knew we’d have to pay about $1600 out of pocket after insurance coverage and Rick’s employer’s HSA contribution. So we started putting money away this year for the braces that will go on in January after Rick’s employer gives us $1200 for their contribution. This way we’re minimizing our cost for the braces and maximizing our tax deduction for them at the same time.
Better Financial Management
Improving the way you manage your finances is an ongoing process. Every step you can take to increase your net worth by reducing spending, increasing saving and minimizing your tax burden puts you one step closer to building a financial picture that will free up more of your cash for doing the things you really have a passion for, such as hobbies, work that you love and charitable pursuits that help the poor and needy in the world.
Improving the way you manage your money also lessens the chances that you will become in need of help from overburdened federal and local institutions that already have their hands full with the many suffering people in our country and around the world. So if you’re in a place where you’re healthy, strong and able to contribute, make a part of that contribution bettering your own financial situation so you can strengthen your own personal situation and become better able to help those who cannot fend for themselves.