Be familiar with values of Health Savings Accounts

Since 2004 Health Savings Accounts (HSAs) have been available to help save and pay for health care costs. They work with high deductible health insurance and are known for their triple tax benefits. Contributions can be deducted from income. Earnings are tax deferred while in the HSA account and, if HSA funds are used for qualified medical expenses, both the contributions and earnings are tax-free when distributed. Below are 5 other benefits of an HSA:

1. There are no income limits for contributions and you do not need to have earned income to contribute. If you have HSA compatible high deductible health insurance, you can make an HSA contribution for the year. No one makes too much to contribute and, unlike an IRA, there is no requirement that you have earned income to be eligible.

2. If you make an HSA contribution, currently you may deduct that contribution regardless of how high your income. Everyone who is eligible to make an HSA contribution can deduct it. The income limit never phases out.

3. You can take tax-free distributions from your HSA for qualified medical expenses, including expenses of your spouse or dependent. This is true even if your spouse or dependent child is not covered under a HSA compatible high deductible health insurance. Your HSA can benefit your family members.

4. You can take a tax-free distribution from an HSA to reimburse yourself for qualified medical expenses in prior years as long as the expenses were incurred after you established your HSA, and you have proof of those expenses. There is no requirement the expenses and the HSA distribution take place in the same year. In fact, the distribution could happen many years later and still be a qualified tax-free distribution from the HSA.

5. You cannot contribute to an HSA once you are enrolled in Medicare. However, you can keep your existing HSA and you still can take tax-free distributions for qualified medical expenses. Many individuals are unaware of these rules and mistakenly believe you cannot keep your HSA once you enroll in Medicare. You can keep it and continue to tap it to pay medical bills.

Enrollment in HSAs are rising as more people become aware of the benefits. As always before you make important financial decisions consult with competent tax, legal and financial professionals.