Q: So, what exactly is a health 401(k) account?
A: A health 401(k) account is usually referred to as a health savings account (HSA).
Q: What is a health savings account?
A: A health savings account (HSA) is a type of savings account that allows taxpayers in the US to save funds for future medical expenses. Funds saved in a HSA are not subject to taxes, resulting in savings. However, you must be participating in a High Deductible Health Plan (HDHP) to be eligible to open a HSA. One of the advantages of having a HSA is that the funds contributed to the account are tax-free, meaning that you do not need to pay income tax when you deposit funds, nor when you use funds in a health savings account.
Q: What is the difference between a HSA and a flexible spending account (FSA)?
A: Unlike a flexible spending account (FSA), funds can be rolled over and made to accumulate year over year if not spent.
Q: Who is eligible for a Health Savings Account?
A: To be eligible for a Health Savings Account, an individual must be covered by a HSA-qualified High Deductible Health Plan (HDHP) and must not be covered by other health insurance that is not a HDHP. Certain types of insurance are not considered “health insurance” (see below) and will not jeopardize your eligibility for a HSA.
Q: Can I get a HSA if I don’t have health insurance?
A: No; you cannot establish and contribute to a HSA unless you have coverage under a HDHP.
Q: Can I have a HSA if I’m on Medicare?
A: You are not allowed to have a health savings account if you are using Medicare as well. However, if you already have a health savings account and decide to enroll for Medicare, you are allowed to keep both. Then again, one disadvantage is that if you have both, you will not be able to add more funds into your health savings account.
Q: Can couples establish a “joint” account and both make contributions to the account, including “catch-up” contributions?
A: It is not allowed to share a health savings account with another person, including spouses. However, a possible solution to this problem is to create an account for each person. This allows both spouses to make catch-up contributions when they are 55 years or older.
Q: What can funds in the HSA be used for and what can’t they be used for?
A: Funds may be used to pay for any qualified medical expenses at any time without federal tax liability.
HSA qualified expenses include (but are not limited to): birth control pills, chiropractor, doctor’s and dental fees, orthodontics, operations, drugs (prescription or over-the-counter), insulin, hearing aids, hospital care, laser eye surgery, Medicare Parts A and B, nursing homes (medical reasons) and nursing services, optometrists and eyeglasses, psychologists, drug addiction recovery, transportation (essentially and primarily for medical care), and wheelchairs and necessary transportation equipment.
HSA non-qualified expenses include: advance payment for next year’s services, athletic club membership, automobile insurance, bottled water, cosmetic surgery and procedures, cosmetics, hygiene products, health programs offered by resort hotels, health clubs, and gyms, illegal operations or treatments, premiums for health insurance (other than COBRAs), social activities, special foods or beverages, swimming pools, and weight loss programs.