Am I Eligible for a Health Savings Account?

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Welcome to the “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.

Today’s question is about health savings accounts, or HSAs; specifically, who’s eligible to have one.

Watch the following video, and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.

You also can learn how to send in a question of your own below.

For more information, check out “3 Ways a Health Savings Account Can Improve Your Finances” and “5 Reasons to Use a Health Savings Account as a Retirement Fund.” You can also go to the search at the top of this page, put in the words “health savings account” or “HSA” and find plenty of information on just about everything relating to this topic.

And if you need anything from tips on finding help with debt to finding the best financial advice, be sure and visit our Solutions Center.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Hello, and welcome to your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is brought to you by Money Talks News, serving up the best in personal finance news and advice since 1991.

Today’s question comes from Kate:

“I have a question about setting up a health savings account. I’m 63 and my husband is 66. I’m covered by his health insurance until I turn 65 and can go on Medicare. When that happens, his current health insurance will be our Part B. Can we set up an HSA at that time?”

OK, Kate, let’s discuss.

What’s an HSA?

HSA stands for health savings account. These are basically like an IRA for health care expenses. You get a deduction for putting money into the account, and you pay no taxes when it comes out, as long as it’s used for qualified medical expenses.

I’ve been using one for many years. It’s been a great help when I’ve had health expenses, and it’s an awesome tool to save money for retirement.

Why are HSAs cool? Let’s count the ways.

1. HSAs are tax-free

Putting money in a health savings account is one of the very few ways you can entirely avoid paying any taxes on that money — ever.

With an HSA, you get a tax deduction for the money you put into the account. Then, the earnings grow tax-free. Then, as long as you use it for qualified health care expenses, you don’t pay taxes on the money you withdraw from the account.

2. HSAs are more versatile than FSAs

A health flexible spending account (FSA) is another type of tax-advantaged account for stretching health care dollars, but it has a big downside.

FSAs are subject to a use-or-lose provision. You can roll over up to $500, but generally you’ve got to spend the money in your FSA within the health insurance plan year or else lose it. (Some plans extend the period for eligible spending a couple of months beyond the plan year.)

With an HSA, however, your money remains in the account — and thus can grow — year after year.

3. You can invest the money in your HSA

It’s possible to invest the money that’s in your HSA so it can grow faster, although investment options depend on where you open your HSA.

Personally, I keep my HSA money in a simple savings account. But if I wanted to, I could invest part of it in a stock index or other mutual fund.

Who’s eligible?

To qualify for an HSA, you need to be covered by a high-deductible health insurance plan. How high does the deductible need to be? For 2020, the deductible has to be at least $1,400 for a single coverage plan and $2,800 for family coverage.

How do you open an HSA?

To open an HSA, you pick a custodian company. One we’ve suggested in the past is a company called Lively. Signing up is easy; it takes less than five minutes.

Visit Lively’s website to learn more about it or to open an account.

I get Medicare: Can I have an HSA?

Now let’s get back to Kate’s question. Here it is again:

“I’m 63 and my husband is 66. I’m covered by his health insurance until I turn 65 and can go on Medicare. … Can we set up an HSA at that time?”

Answer: No. Once you enroll in Medicare, Part A and/or Part B, you can’t contribute to an HSA. Why? I just told you: To contribute to an HSA, your only insurance has to be a high-deductible health plan. Medicare isn’t that, so you can’t contribute.

However, here’s the good news: If you already have an HSA, you can keep it. And, you can use the money to pay for eligible medical expenses, including your Medicare premiums.

Hope that answers your question, Kate.

Now, what about you? Got a question of your own to ask? Then do what Kate did: Simply hit “reply” to any Money Talks News email newsletters and fire away. I can’t answer every question, but I do my best.

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I’m Stacy Johnson. See you here next time!

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About me

I founded Money Talks News in 1991. I’m a CPA, and I’ve also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

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