Contributions made to HSAs lower one’s taxable income, and payments made from an HSA aren’t taxed. Plus, the funds can be invested and interest can accrue in an HSA — tax free.
Used with care, HSAs can be a smart financial tool. But they’re also potentially complex.
For better or for worse, the responsibility is on the employee to make sure he or she stays within the rules of the game. For some this is empowering. For others, it’s intimidating.
Whether someone already has an HSA or is considering one, keep reading to find out about 10 potentially weird, possibly little-known FAQs about HSAs.
10 HSA FAQs
- What is the HSA eligibility rule regarding not being a dependent on someone else’s income tax return? If you are a dependent on someone else’s tax return, are you eligible for an HSA?
Answer: No. This rule serves primarily to prevent children from opening and funding HSAs. The rule does create some interesting scenarios for adult children.
- Can HSA owners that enroll in Medicare use their HSA to pay for Medicare premiums even though they are no longer HSA-eligible?
Answer: Yes. The majority of Americans will start Medicare at age 65 and therefor lose eligibility for an HSA. Losing eligibility for an HSA means that the HSA owner cannot contribute new money but does not stop a person with an HSA balance from continuing to use that balance for medical expenses.