How to Use Future HSA Contributions to Pay for
February 9, 2011
Vol. 7, Issue 1
Medical expenses you incur today can be paid for with pre-tax money from your HSA, even if you do not have enough money in your account to cover it all today. That could cut your costs by 30% or more, but you must have opened your health savings account before this can work.
Reimburse Yourself Later
You can use your HSA to pay for medical expenses that occur after you establish your HSA. Even if you do not have enough money in the HSA to cover all of the expense at this time, you can still reimburse yourself tax-free from your HSA once you are able to fund it.
Sometimes it’s easy to forget how much money you make compared to how much you actually get to keep after the government takes their share. So anytime you can pay a bill with pre-tax dollars, your money will go a lot further.
Don’t Miss This Tax Break
So for instance, let’s so that all you’ve done so far is open your account with a $25 deposit. And let’s say you have an accident where you dislocate your shoulder, and you experience emergency room charges, follow up doctor visits, prescription drug expenses, and follow-up physical therapy.
Maybe the charges added up to $5000, most of which you put on a credit card. (This assumes you do not have an accident plan to buffer this risk). So before you send any money to the credit card company to pay off this bill, first deposit that money into your HSA. (An individual can contribute up to $3050/year ($4050 for those over age 55), and a family can contribute up to $6150).
You can immediately withdraw that money, but by putting it in your HSA first it essentially made that money, and the associated medical expense, tax deductible. You can continue to do this until you hit your contribution limit for the year, or until you fully reimburse yourself.
Remember, you still have until April 15th to make your 2010 contribution. You can also make your 2011 contribution any time before April 15th, 2012. But you must have your HSA established before you incur your medical expense.
It is always in your best interest to put money into your HSA as soon as possible. That is because not only do you get the tax deduction, but also the money grows tax-deferred. You can put it in savings, or in stocks or mutual funds.
An HSA is the only investment you’ll have that will give a tax-deduction when you deposit the money, that will grow tax-deferred, and that will be tax-free upon withdrawal if used to pay for qualified medical expenses.
If you have not yet established your HSA, many banks and credit unions will offer that service. Or, you can check on our HSA Administrator page for some companies we recommend.
P.S. Next month we’ll look at some online tools that may allow you to better comparison shop when looking for medical care.
P.P.S. One of the biggest risks you face in your retirement is a long-term care event. To learn more about long-term care insurance, join us on this month’s Strategies for Wealth educational webinar.