HSAs carry a triple tax benefit: Account contributions are tax-free, as are funding earnings and withdrawals if used for certified bills.

Consumers can use HSA funds for a non-qualified buy — however they’d lose a prong of the three-tiered tax profit. A withdrawal can be taxed as earnings, much like the way in which a pre-tax 401(okay) or particular person retirement account works.

In a perfect world, shoppers would have the ability to absolutely fund their HSA annually and pay for present well being prices out-of-pocket, leaving the accounts untouched till retirement, in line with monetary advisors.

“The compounding of earnings could fund all your health care when you’re old,” stated Carolyn McClanahan, a doctor and authorized monetary planner, primarily based in Jacksonville, Florida.

But it is not all the time doable to make use of HSAs that manner — particularly for decrease and center earners who could not have the ability to shoulder these bills. HSAs are usually paired with high-deductible well being plans which, relying on the plan, might generate huge payments for medical care.

Here are 4 instances during which HSA funds could be utilized to premiums:

Premiums for health-care continuation protection similar to COBRA depend as a certified expense, in line with the IRS.

COBRA lets individuals who lose well being advantages — as a result of circumstances like job loss, discount within the hours labored, jobs transitions, loss of life or divorce — proceed their office well being protection on a short lived foundation.

COBRA protection usually permits shoppers to maintain the identical health-care suppliers, however the protection is usually expensive.

When employed, employees typically solely pay a share of the overall premium, with the remaining sponsored by their employer. With COBRA protection, nevertheless, people could must cowl the complete premium, up to 102% of the associated fee to the plan.

The complete common premium for single protection by way of a office plan in 2023 is $703 a month, or $8,435 a 12 months, according to KFF, a nonprofit well being knowledge supplier. For households, it is $1,997 a month, or $23,968 a 12 months.

Health premiums paid by somebody receiving unemployment compensation below federal or state regulation are additionally eligible.

These could be premiums for COBRA or a well being plan bought over an Affordable Care Act marketplace, for instance.

Medicare premiums for folks age 65 and older are additionally certified, in line with the IRS.

This would come with premiums for Parts A (hospital insurance coverage), B (medical insurance coverage) and D (prescription drug protection).

However, premiums for Medicare supplemental well being insurance policies — like Medigap plans — aren’t certified.

“The big mistake I see over and over is people thinking they can use HSAs for Medigap expenses,” McClanahan stated.

Medicare beneficiaries do not must pay their premiums instantly with an HSA to get the profit. They will pay from their Social Security checks or from a checking account, for instance, and reimburse themselves with their HSAs later, McClanahan stated. Keep information and receipts of all these transactions, she suggested.

There’s a further caveat: If the HSA proprietor is not 65 years or older, then Medicare premiums for a partner or a dependent who’s 65 or older typically aren’t certified, the IRS stated.

Consumers can even use their HSAs to pay for long-term care insurance coverage premiums.  

There are dollar limits on certified premiums on primarily based on age. Here was the breakdown for 2022:

• Age 40 or below — as much as $450
• Age 41 to 50 — $850
• Age 51 to 60 — $1,690
• Age 61 to 70 — $4,510
• Age 71 or over—$5,640

The age corresponds to the particular person for whom the premiums have been paid. The greenback limits are up to date yearly.

The insurance coverage have to be a “qualified long-term care insurance contract,” as outlined in IRS Publication 502.

Ideally, shoppers would pay out of pocket for his or her long-term care premiums earlier than they retire, McClanahan stated. However, it typically is smart to make use of an HSA to pay these certified premiums in the event that they’re retired and now dwelling off their financial savings, she stated.