If in case you have a well being financial savings account however not sufficient cash to cowl your medical bills, you aren’t essentially doomed to insurmountable debt — even should you owe on previous medical payments.
Alexandra Wilson, a Licensed Monetary Planner in Atlanta, used her HSA contributions one 12 months to cowl medical payments she incurred the earlier 12 months when she gave delivery to her daughter.
She had front-loaded her HSA in anticipation of her daughter’s arrival. However as so many new mother and father uncover, Wilson ended up making further visits to her pediatrician post-delivery.
As a substitute of racking up debt or digging into her common financial savings, she elevated her HSA contributions and used that cash to repay the payments.
“You’re saving cash since you’re not having to pay taxes on that cash,” Wilson stated.
Need to know how one can begin paying down previous medical debt along with your HSA? Learn on.
The right way to Use an HSA to Pay Off Medical Debt
Cash that you just put into an HSA is yours to maintain — not like a versatile spending account, which has a use-it-or-lose-it annual requirement.
When you (or your employer) have contributed to your HSA, you will have some financial savings constructed up. Right here’s know if you should use that cash to repay previous medical debt.
If You At the moment Have an HSA
Utilizing your HSA to repay previous medical debt relies upon the reply to at least one query: Did you incur the debt earlier than you arrange your HSA?
If the reply is “sure,” you can’t use the HSA.
If the reply was “no,” you may.
Even when your medical debt is in collections, you may make funds utilizing your HSA card — simply make sure you have the funds for in your HSA to cowl the expense.
Let’s say you’ve been contributing $100 a month to your HSA for one 12 months. You’ve $1,200 within the account whenever you break your arm and go to the emergency room.
You find yourself getting a invoice for $2,000, which is $800 greater than you’ve in your account. Don’t panic.
You should utilize the $1,200 you’ve already saved to pay a part of your invoice, then use your common $100 contributions to the HSA to make month-to-month funds in your invoice for the subsequent eight months — the excellent news is that almost all healthcare suppliers will comply with fee plans.
With older debt, it may not be so simple as a swipe of your HSA card, significantly should you initially paid the invoice utilizing a bank card.
You could must name your HSA supplier and supply receipts to get approval. Assuming you do get approval, you’d basically be reimbursing your self out of your HSA.
You’ll need to report all HSA distributions on tax type 1099-SA whenever you file your tax return. However as long as you used the cash for medical bills, these distributions should not taxable.
If You Had an HSA within the Previous
Let’s say you used to work for an employer that provided you a high-deductible well being care plan and also you added cash to the HSA. Then you definately received a brand new job (or switched plans), and also you signed up for medical insurance that wasn’t excessive deductible. What occurs to your HSA?
“You possibly can nonetheless proceed to make use of your HSA — you simply can’t contribute to it whilst you don’t have a excessive deductible well being plan,” Wilson stated.
The HSA annual contribution limits for 2023 are $3,850 for people and $7,750 for household protection.
Meaning you should use financial savings from an previous HSA to pay for this 12 months’s medical bills or different previous medical debt, as long as you incurred that expense after you opened the HSA.
And what occurs to the cash you don’t use?
That account is nice eternally and can be utilized to pay for future medical bills. When you flip 65, you should use cash in your HSA for non-medical bills. You’ll pay earnings taxes on the non-medical withdrawals, as you’ll with a 401(okay).
Nevertheless, should you depart your present employer or change well being plans, your HSA might cost you a month-to-month administrative charge. Charges fluctuate by plan however are typically $5 monthly or much less. They’re normally waived in case your HSA stability is above a certain quantity (sometimes $1,000 to $5,000).
When you meet the plan’s minimal financial savings threshold, you’ll have the choice to speculate the cash in your HSA so the funds in your account can develop.
Which implies that HSA might assist hold you bodily — and fiscally — wholesome for a very long time.
Tiffany Wendeln Connors is deputy editor at The FinanceGrabber.
Rachel Christian, a Licensed Educator in Private Finance and a senior author for The FinanceGrabber, additionally contributed.