Health Savings Accounts (HSA)–often coupled with a high-deductible plan–have become quite popular with employers in recent years. In many places they’ve replaced traditional employer insurance offerings as they pass more healthcare costs on to the employee. They can be beneficial to the employees to as they can take the HSA with them if they leave for a new job and can use it as a place to save money for health expenses as retirement. In fact, if you start saving in an HSA early in your career and invest properly (yes, you can invest a chunk of your HSA) you could have a hefty number in there by the time you retire. Could you image having an HSA available to cover your medical expenses in retirement and not having to tap your IRA Or 401(k)? Now, back to the CARES Act. The CARES Act, known officially as the Coronavirus Aid, Relief, and Economic Security Act, contains some parts that also impact HSAs, along with your retirement accounts. One example is that the legislation temporarily allows for a health plan to provide coverage for telehealth services and other remote care services that do not meet regular deductible requirements. Under normal circumstances, your health plan cannot waive the deductible for medical expenses not considered to be preventative. Another big change is that you can now take tax-free distributions from your HSA to pay for a wider range of medical expenses, including over-the-counter medicines and other medical costs. This is a permanent change and is not temporary. Of course, I would encourage you to check to make sure whatever you plan to spend your HSA money on is qualified. I also encourage you to think long and hard about whether using HSA to buy something like, say, allergy medicine, is really worth it (hint: it probably isn’t worth it). It’s still good to know that these changes exist and to know that you can take care of things like telehealth services without worrying about whether you meet deductible requirements.
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Going Up? 2020 HSA Limit Increases Announced
There’s a good chance that you’re familiar with what a Health Savings Account (HSA) is. You may not have one, but you may have considered opening one at some point in recent years as it has become a common offering by many employers. If you are unfamiliar with HSAs, they are tax-free accounts that can be used to pay for qualified medical expenses and are used in conjunction with high deductible health plans. Distributions used to pay to medical expenses are tax free and there are no income limits for contributions. Furthermore, HSAs can be a great long-term investment as you can build them up in ways similar to your retirement accounts (investing, contributions, etc.) and use them to supplement your nest egg when you do actually retire. While there are no income limitations when it comes to contributions, there are limits on how much you can contribute to the account each year (just like a retirement account). For 2019, the contribution limit was $3,500 for individuals and $7,000 for those with family coverage. For 2020, that numbers rises, ever so slightly, to $3,550 for individuals and $7,100 for family coverage. These numbers are announced by the IRS each year and account for inflation adjustments, so they are usually incremental. Having the numbers a year in advance can help you plan for 2020, especially if you want to max out your HSA contribution or want to make an adjustment to your contribution numbers. If you have an HSA and want to make better use of it or build it up for the future, you should speak with a certified financial planner or a representative of your plan’s custodian. They should be able to provide helpful tips and advice about the limitations of your account and how you may want to invest or grow it.