The requirements for setting up a health account are:
• You are covered by a High Deductible Health Insurance Plan (HDHP) that must meet certain qualifications.
• You have no other health insurance (with a few exceptions).
• You are not enrolled in Medicare.
• They cannot be claimed as dependent on someone else’s 2018 tax return.
No approval or approval from the IRS is required to set up an HSA. You determine to set up an HSA with a trustee. A qualified HSA trustee can be a bank, insurance company, or someone who has already been approved by the IRS as a trustee for individual retirement arrangements (IRAs) or Archer MSAs. The HSA can be set up by a trustee who is different from your health insurance provider.
Usually employers offer HDHPs, but you can set one up with a healthcare provider if you are self-employed or not. There are no maximum income limits for an HSA, and you do not need to have earned any income to be able to deduct contributions: $ 3,600 ($ 4,400 if you are 55 years or older) for a single plan and $ 7,200 for a family plan.
The advantages of HSAs are obvious:
• Contributions are tax deductible even if you don’t list your deductions.
• Funds in the account show deferred tax growth and unused dollars in a given year may remain in the account and continue to show deferred tax growth.
• Distributions from these accounts are tax exempt provided they are used for qualifying medical expenses (those that would otherwise be considered detailed medical expenses).
One of the most important considerations in retirement planning is having the funds available to cover medical expenses, as healthcare expenses can quickly deplete retirement benefits. If you fund an HSA every year that you can and don’t use the funds for ongoing medical expenses, you can accumulate a significant amount that can help meet future medical expenses. Once you are enrolled in Medicare, you will no longer be able to make HSA contributions, but you will not need to liquidate your HSA. You can continue to make tax-free and penalty-free distributions for qualified medical expenses, including long-term care premiums. You can even make tax-exempt and penalty-free distributions for Medicare Premiums (but not Medicare Supplemental Insurance Premiums) and expenses, or for your share of employer-related coverage premiums.
If you don’t use the funds in your HSA for medical expenses, you can use them for any other purpose from the age of 65 without penalty. If these funds are withdrawn before the age of 65 for non-medical reasons, there is a 10% penalty associated with the withdrawal.
For example, let’s say you are now 65 or older and have never withdrawn any money from your HSA, but instead paid for your covered health expenses with non-taxable HSA assets. The good news with this strategy is that it offers a little-known benefit later on. If you need additional funds for something later, including non-health items like a new roof or a car repair, you may be able to withdraw that amount from your HSA without incurring income taxes.
It is important that you have receipts on file to document previous healthcare expenses. One benefit of this strategy is that you don’t even have to incur healthcare expenses in the same year that you pay out for non-healthcare expenses.