Your health savings account refresher

Health savings accounts (HSAs) have been around a long time, and little has changed since they were first introduced in 2003. They offer tax benefits, many of which you can benefit from if you know how. Here's a refresher on how HSAs work:

• An HSA has two parts. These parts include a high-deductible health insurance policy and a savings account. The idea is simple: You buy a health plan with a high deductible, and you deposit cash into a savings or investment account to pay the policy deductible and other qualified out-of-pocket medical expenses.
• Contributions are tax-deductible. The tax benefit comes from the way the savings account part of the HSA works, which is similar to a traditional individual retirement account. For example, you can claim a federal income tax deduction for contributions to your HSA, and the deduction is above the line, meaning you can benefit without having to itemize.
• Contribution amounts change. For 2018, the maximum tax-deductible contribution is $3,450 when the insurance plan covers only you, or $6,900 when you purchase an insurance plan for your family. When you're age 55 or older, you can contribute (and deduct) an extra $1,000.
• There are rules around withdrawals. Interest, dividends or other growth in the account is tax-free as long as you use withdrawals for qualified medical expenses. But what happens if you use the money for other purposes? The withdrawals are included in income, taxed at your regular rate, and subject to a 20-percent penalty. If you are 65 or older, you can withdraw money from your account for any reason without paying a penalty.

Keep in mind that other rules apply, including the opportunity to fund an HSA with a tax-free rollover from your individual retirement account.

Call if you have questions about how you can make the most tax-savvy choices with your HSA.