Changes to HSA Accounts: How to Create a Spending and Saving Strategy for 2022
Any changes to HSA accounts will tie into your larger spending plan. New plan year is always a great opportunity to come up with a new HSA spending and saving strategy. As your HSA is an account you can pull money from, it's important to see how it fits into your overall financial plan.
A bright spot in an otherwise gloomy 2020 into 2021 was that qualified health expenses for HSA have expanded. With the passage of the CARES Act in 2020, and the IRS declaring PPE eligible in 2021, there's now greater flexibility in what is eligible in terms of HSA spending. Here's what has changed:
HSA can now reimburse the cost of menstrual care products — think sponges, cups, liners, pads, and tampons
A prescription is no longer needed to purchase over-the-counter drugs and medicines with your HSA funds
Personal protective equipment (PPE) such as masks, hand sanitizer, and sanitizing wipes to prevent the spread of COVID-19 became HSA eligible expenses
Make sure to hold on to your receipts for any or all HSA eligible medical expenses. Whether you keep them in a stack and stash them in a safe place, or snap pics and save them to a file on your drive, trust that these receipts will come in handy during tax season. Learn more about paying from your HSA and reimbursing yourself later.
If your HSA-compatible high deductible health plan (HDHP) began prior to January 1, 2022, then telehealth expenses may be covered at no cost to you prior to your deductible being met, without disqualifying the plan from being HSA-compatible. This was enacted by the IRS in response to the COVID-19 pandemic. However, for all plans beginning January 1, 2022 or later, telehealth visits once again must be subject to the deductible for the plan to remain HSA-compatible.
It is important to note that regardless of whether or not telehealth can be covered before reaching your deductible, it remains an HSA eligible expense for account holders, meaning you can use your HSA funds to pay for your share of telehealth visits.
Know who Is covered
As outlined in the IRS Publication 969, eligible individuals that are covered under an HSA include:
You, or your spouse if filed jointly, could be claimed as a dependent on someone else's tax return in previous year
It's never easy to predict exactly how much you'll need for health-related expenses. But an educated estimate is a good place to start. See how much you spent in the current year, and go from there. Your personal medical expenses covered by an HSA can include any of the following:
Over-the-counter medications and supplies
Menstrual care products
Your annual deductible
Want to know how much you'll save in taxes now and into the future with an HSA? Use our HSA Calculator to find out.
Create a Health Savings Account (HSA)
Now for the fun stuff. How much you decide to stash away each month is a key part of your HSA spending and saving strategy. But the more you tuck away, the more you can use toward medical expenses. Some of your medical expenses, such as your deductibles, copays and eligible expenses, can come out of this account.
And let's not forget the triple tax benefits of an HSA: Money you put into your HSA account can bump down your taxable income, and withdrawals made for qualified medical expenses are tax-free. And should you decide to invest the funds in your HSA, any earnings are also tax-free.
Commit to auto-contributing a set amount each month or week. For 2022, the changes to HSA accounts include the contribution limit increasing to $3,650 for individuals, and $7,300 for families. If you're age 55 and up, you're eligible for a HSA catchup contribution of $1,000.
If you can swing it, contribute regularly into your HSA account so you hit the max. With the max contribution at $3,650 in 2022, you'll want to auto-save $70.19 a week, or about $304 a month. If you're eligible for the family contribution limit, which for 2022 is $7,300, set your savings on auto-pilot: commit to stashing $140.38 a week, or $608 a month.
Review your health insurance premiums
The close of a plan year is always an opportunity to review your plan and make sure it's still a good fit for you. Unless you qualify for a special enrollment period, this is the only time you can make changes to HSA accounts. Here are a few questions to ask yourself:
Have you experienced a major life event? For instance, had a family, got married, got divorced, lost your job, or is one of your kids no longer a dependent and is leaving the nest? (Note, you might also qualify for a special enrollment.) If so, how might that impact your health insurance needs and costs?
Have you moved to a different state? Which insurance carriers and plans are available?
Do you anticipate requiring more medical treatment, prescription medication, and trips to the doctor?
Has there been a significant change in your financial situation?
If you were on an HDHP last year, would it be best for you to continue to stay on a HDHP in the current year? And vice versa?
Getting the ball rolling on your HSA spending and strategy for the year ahead and beyond will position you for success. Less hassle, less worry, and ultimately less work. Godspeed!
As always, the information provided in this article should not be considered legal or tax advice. Please consult a licensed professional for appropriate advice given your individual situation.
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