Yes, you can open a health savings account (HSA) even if your employer doesn't offer one. But you can make current-year contributions only if you are covered by an HSA-qualified health plan, also known as a high deductible health plan (HDHP). For 2019, your deductible under the plan must be at least $1,350 for single coverage or $2,700 for family coverage. In 2020, those figures will increase to $1,400 and $2,800 respectively. And you can't be covered by other disqualifying coverage such as Medicare, Medicaid, TRICARE or a spouse's health plan. Nor can you be claimed as a tax dependent in that year.
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HSA is worth considering because it can be a powerful savings vehicle as well as a way to help pay for health care costs. First, there are the tax advantages. Contributions can be made pre-tax, making them exempt from federal and most state income tax; any interest and investment earnings in your HSA accumulate tax-free. And withdrawals for qualified health care payments remain tax-free.
Then there's the flexibility. Unused funds in the account continue to roll over from year to year. And after age 65, you can use funds from the account without penalty for nonmedical expenses.
What are my contribution limits?
For individuals, the 2019 HSA contribution limit is $3,500 for individual coverage and $7,000 for family coverage. In 2020, those limits will increase to $3,550 and $7,100 respectively. If you turn 55 during the tax year or are already age 55 or older, you qualify for a catch-up contribution of $1,000 per year. As far as balances, there are no limits or thresholds you need to maintain.
What expenses can an HSA can cover?
HSA funds can be used for:
- Qualified out-of-pocket medical expenses you incur that are not covered by your health plan
- Medical, dental or vision coinsurance and co-payments
- Prescription drugs
- Prescription eyewear and supplies (eyeglasses, goggles, safety glasses, sports eyewear, sunglasses)
- Some medical treatments not covered by your insurance, such as visits to a chiropractor
You can begin by reviewing the various health care options your employer provides to determine whether an HSA-qualified health plan might be right for you. If you decide to enroll in the plan, you should also open an HSA and try to contribute as much as you can up to the annual limit. HSAs are available from a variety of institutions, but it's worth noting that not all HSAs are created equal; some providers have additional fees for the debit card or the investment portion of the account.