Questions (And Answers) You Never Thought To Ask About HSAs

August 30, 2021 | By Jessica Goedtel, CFP®

Health Savings Accounts (HSAs) are a favorite among financial planners, and it’s easy to see why – contributions are tax deductible, gains are tax-free, and distributions are non-taxable as long as they are used for qualified medical expenses. HSA balances can be rolled over each year, unlike flex savings accounts (FSAs). Plus, if you hang on to your HSA until retirement, you can even take a distribution from it after age 65 for non-medical expenses and just pay income tax on the withdrawal, like an IRA. Flexible and tax advantaged! With that in mind, here are a few questions you may not have considered in regards to your HSA.

Is my gym membership a qualified medical expense?

If your gym membership or health club is just for general health benefits, then no. However, if your doctor prescribes a specific treatment for a specific condition it can be allowed (such as a weight loss plan to treat obesity). The treatment needs to be medically necessary, and if you do go this route it is very important to document everything.

Right now there is legislation pending in Congress (the aptly named PHIT Act) that would allow HSAs to be used for gyms, sports equipment, and even running race fees. Unfortunately it’s been kicked around since 2006, but here’s hoping it will get passed someday soon.

Can I use my HSA for medical marijuana?

Even if you live in a state that allows medical marijuana and have been prescribed a card from your doctor, you cannot use your HSA for these expenses. Why? Because marijuana is still considered an illegal controlled substance by the federal government, and the IRS specifically disallows these as qualified medical expenses (see IRS Publication 502). It’s possible that at some point that if marijuana is ever legalized federally that is will be an eligible expense, but until that day avoid swiping your HSA card at the dispensary.

If I don’t have enough money to cover an expense from my HSA account, can I make a contribution after the expense and then reimburse myself?

Yes! As long as the expense is incurred after you’ve opened the HSA, you can get a tax deduction for contributing to your account and then reimburse yourself afterwards. For example, on May 4th you have $100 in your HSA, but on May 5th you get an x-ray and the bill is $200. You could pay the $200 out of your own pocket, make an additional $100 contribution to get your HSA to $200 and get the tax deduction, then reimburse yourself. Just make sure to keep receipts for your expenses.

Can I only contribute to my HSA through payroll?

You can make contributions directly to your HSA as long as you stay under the annual contribution limits (for 2021: $3,600 single, $7,200 family plan, extra $1,000 allowed if over 55). The annual limit includes employer contributions. Make these contributions by logging into your HSA plan which will have instructions on linking your account and making the direct contribution. You can even make contributions to your HSA until the tax filing deadline of the tax year, which is a great option if you want to max it out.

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