Hsa Lasik
Sunday, September 20th, 2009What’s up with Health Savings Accounts?
I’ve read the wikipedia, IRS site, etc and still have questions. An answer to even just part would be greatly appreciated:
1. I’ve read the yearly limit is around $2900, is that CONTRIBUTION limit or a BALANCE limit?
2. What is my (essentially) lifetime limit? In other words, if during year 1 I spend $0, then by the end of year 2, I could theoretically (if nothing changes) have a balance of $5,800, correct?
3. If I have some kind of emergency and need to tap into that money, HOW do I pay the tax/penalty on it?
3b. How much of a penalty are we talking about?
4. Considering my HDHP has a $3000 yearly out of pocket maximum. Can the Health Insurance carrier ‘see’ my other costs (that it will not pay anything for), such as lasik, and can that be subtracted for my out of pocket maximum purposes?
4b. So this must mean that my insurance company somehow can see my HSA balance and transactions? That doesn’t seem to make sense.
5. How closely does the IRS watch?
1. Contribution limit. The balance is unlimited.
2. No limit (until the rules change, that is).
3. There is a line item on tax forms for these types of withdrawals. Same as with withdrawals from retirement accounts (401(k), IRA).
3b. Regular income tax +10% penalty.
4. They will only see what goes through them, and for this reason, you’re supposed to channel some stuff through them even if they’re not going to pay it. Everything that they would count into the out-of-pocket expenses should go through them (but not everything that goes through them is counted — see your plan literature).
4b. Nope, the insurance company doesn’t have access to that, and doesn’t even know if or where you have the HSA account.
5. HSA is a relatively new thing, I’m not sure anyone knows.
A couple of additional points that you may not be aware of:
a) After age 65, you can withdraw money from HSA for non-medical purposes and pay no penalty (income tax will still need to be paid — similar to an IRA).
b) If you become ineligible for HSA (e.g. you go to an insurance plan with regular, not high, deductible), you’ll lose the ability to contribute to the HSA, but you can still take money from it for medical expenses tax-free and pentalty-free, until you spend it all.