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Health Savings Accounts (HSAs)

Health Saving Accounts(HSAs) can help you save money on both your medical insurance premiums and the income taxes you pay each and every year.  Because HSAs must be combined with the purchase of a High Deductible Health Plan (HDHP) your medical health insurance premiums are normally much lower than a typical medical plan.

When combined, the lower premiums and tax saving could amount to thousands of dollars of annual saving each and every year.  HSAs allow you to avoid federal income tax by lowering your taxable income by the amount deposited into your HSA.  Contribution limits often change with a different limit for individuals and for families placing funds into a HSA each year.  Once an HSA account has been opened at the place of your choosing, there is no minimum annual deposit required. 

* If you currently have money in your traditional Individual Retirement Account (IRA) and would like to start an HSA using some of those funds, the Internal Revenew Service allows a one time direct transfer from your IRA into your HSA in order to fund your HSA.  If you choose to do so, current law allows you to maintain and contribute to both a Roth IRA or Standard IRA and a HSA in the some tax year.  Once an account is established, if you choose not to make a deposit ($0-zero) into your HSA, that's ok, it is not a requirement to make annual deposits.

Like a Standard Individual Retirement Account(IRA) you may deduct the amount your deposits into your HSA from taxable income.  In April, at tax time that is a nice deduction to have as this is when you see your HSA tax benefit.  Here is a Kaiser Permanente® Tax Savings Calculator Tool you can link to and use to see basic income tax impacts to you.    

The return on your investments in your HSA remain tax deferred until funds from your HSA are spent on Quaified Medical Expenses, which at that time, become Tax Free Expenses.  At age 65 these investment funds still remain your money, however taxable if spent on Non-Quaified Medical Expenses. 

*When funds from the HSA are spent on Qualified Medical Expenses (as defined by the Internal Revenue Service-IRS) the funds spent become tax free funds.  On the other hand, if funds from a HSA are spent on Non-Qualified Medical Expenses the amount spent becomes taxable income plus a 20% penalty is assessed by the IRS.

Keeping receipts and good records regarding the funds spent from your HSA is very important.  

The following lists are a general overview of Qualified Medical Expenses and Non-Qualified Medical Expenses.  These lists are not all-inclusive and subject to change by the IRS at anytime.  Be sure to consult your licensed legal professional and/or your tax adviser.     

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 Qualified Medical Expenses include:

  • Acupuncture
  • Air conditioner (when neccesary for breathing)
  • Alcoholism treatment
  • Ambulance
  • Birth control & contraceptive devices (when by prescription)
  • Braces
  • Braille materials
  • Chiropractor
  • Christian Science Practitioner
  • Contact lenses
  • Cosmetic surgery & procedures (if related to accident, birth defect or disease)
  • Convalescent home (medical)
  • Crutches
  • Dental x-rays
  • Dentures
  • Drug addiction therapy
  • Exercise equipment (by presciption)
  • Eyeglasses
  • Fluoridation unit
  • Guide dog
  • Handicap equipment
  • Healing services
  • Hearing aids & batteries
  • Heating devises (if therapeutic)
  • Home improvements (health-related only, e.g., wheelchair access)
  • Hydrotherapy
  • Invalid chair
  • LASIK eye surgery
  • Lead paint removal
  • Legal fee (required to authorize health treatment)
  • Lodging (away from home for outpatient care)
  • Nursing (registered)
  • Nursing home and services (including board and meals)
  • Ophthalmologist, optician, and optometrist
  • Orhopedic shoes
  • Oxgen and oxygen equipment
  • Prenatal care
  • Prescription medicines
  • Prothesis
  • Psychotherapy
  • Reclining chair (prescibed)
  • Sickroom supplies
  • Special school or home costs for the physically and mentally impaired
  • Splints
  • Telephone/TV for impaired
  • Therapy equipment
  • Transportation expenses (relative to healthcare)
  • Tuition for child with learning disability
  • Ultra-violet ray trearment
  • Vaccines
  • Vasectomy
  • Whirlpool bath (by prescription)

Non-Qualified Medical Expenses include:

  • Advance payment for services rendered next year
  • Athletic club membership
  • Car insurance premium (medical portion)
  • Boarding schools fees and child care
  • Commuting expenses of a disabled person
  • Cosmetic surgery and procedures (unless due to accident, birth defect, or disease)
  • Cosmetics, hygiene products, and similar items
  • Diaper service
  • Domestic help
  • Funeral, cremation, or burial expense
  • Illegal operatons and treatments
  • Illegal procured drugs
  • Maternity clothes
  • Over-the-counter medication (unless accompanied by a prescription)
  • Premiums for life insurance, income protection, disability, loss of limbs or sight
  • Scientology counseling
  • Social activities
  • Special foods or beverages
  • Stop-smoking programs
  • Swimming pool
  • Travel for general health improvement
  • Tuition and travel expenses to send a special needs child to a particular school
  • Weight loss programs

The 2010 Federal Healthcare reform legislation signed into law impacts "Over-the-Counter" (OTC) purchases.  Under the reform legislation the eligibility status of certain drugs and medicines sold OTC require a prescription to be considered an eligible expense.

Eligible over-the counter items:

  • Band aids
  • Birth control
  • Braces and supports
  • Contact lens solution and supplies
  • Elastic bandages and wraps
  • First ais supplies
  • Reading glasses

Ineligible over-the-counter medications - unless accompanied by a prescription

  • Acid controllers
  • Acne medication
  • Allergy and sinus
  • Antibiotics
  • Anti-itch and insect bite
  • Cough, cold and flu medicine
  • Eye drops
  • Indigestion aids
  • Laxatives
  • Motion sickness
  • Nasal sprays
  • Ointments and creams
  • Pain relief
  • Respiratory treatments
  • Sleep aids and sedatives
  • Stomach remedies

Learn more about eligible medical expenses.  Read More... 

Again, the above items are a general list and not all inclusive.  The *IRS publication 969 contains more information pertaining to this subject.  You are advised to consult your legal or tax professional regarding HSAs and their tax impact on you.

Most local commercial banks offer HSAs.  Fees and investment options do vary by bank by bank.  Some financial insitutiuons specialize in Health Saving Acoounts.  Below is a link where you obtain HSA information and apply online now for an Individual Health Saving Account (HSA) with HSA Bank an industry leader.

Click on logo for HSA Bank information.                     

HSAs are a great tool one can use in order to help manage their rising medical healthcare costs.  Once funded an HSA creates a bucket of money from which you can draw upon to pay your medical expenses.  If you have no medical expenses which need to be paid your money balance in your HSA continues to build tax deferred.  HSAs are just that - Your Money!  

Get Information & Real Time Plan Quotes on Several "Health Savings Account" Approved Plans.   Input your Basic Information & Calculate your Rates.    


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It was like finding money getting my health insurance with Greg.
Sean Bailey - Petaluma, CA


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