A Health Savings Account, or HSA, is a valuable tool in managing medical expenses. They can help you save, pay for certain expenses not covered by your insurance and you can reimburse yourself at any time in the future for medical expenses you incur while the HSA is open.
First, let’s look at Qualified Medical Expenses, or QMEs.
The HSA can be used to pay for QMEs that are not covered by your HDHP. QMEs are medical expenses the IRS allows HSAs to pay, including (but not limited to) dentist and optometrist visits, eyeglasses, transportation to medical care, chiropractic care and much more. The best part is that these expenses can be paid tax-free with the HSA. QMEs include expenses of the individual, their spouse and dependents regardless of their medical insurance coverage.
Secondly, your HSA can reimburse you for QMEs at any time. You decide. You can take a reimbursement the day you incur the medical expense or 30 years in the future. Regardless of when you take the QME reimbursement, it is tax free.
Say you go to the doctor for a checkup and get a bill for $1,000. With an HSA, you can pay that bill with your HSA funds immediately, or you can pay the bill out of pocket, keep the receipt, and reimburse yourself that $1,00 anytime, tax-free, in the future. That gives you $1,00 more dollars in your HAS to invest, which will hopefully appreciate over time.
Note that your HSA cannot pay for medical expenses incurred before the account is opened, but it can reimburse for any expense after that even if the account does not have that amount in it at the time.
Lastly, any withdrawals are subject to ordinary income tax, just like traditional IRAs. So if you and your dependents are fortunate enough to not have medical expenses but you need the money for non-medical expenses after age 65, the HSA works in your favor by letting you keep that money in the account.
There are no Required Minimum Distributions (RMDs) for HSAs. That means you may continue to make contributions as long as you are not enrolled in Medicare. When you die, your HSA funds can be used by your spouse or it can be taxed and pass on to your non-spouse beneficiaries.