What is a Health Savings Account (HSA)? An HSA is a savings account for health care expenses; is one of the few deductions allowed regardless of your income; and has triple tax benefits (tax deduction for contributions, tax-deferred growth and tax-free distributions if used for qualified medical expenses). If you missed it, my colleague Nick Prigitano wrote a detailed article about the benefits of HSAs.
Little known fact for those over age 55: In the year you turn 55, you can start contributing an extra $1,000 to your Health Savings Account (HSA), and so can your spouse! The trick is that your spouse must open and contribute to their own account.
The normal IRS limits for a family plan HSA (or a couple plan) is $7,200 per year (2021 limits). Your employer plus employee contributions cannot exceed this limit. However, in the year you turn age 55 until you sign up for Medicare, your limit increases to $8,200. The year your spouse turns 55, they can also add $1,000 (albeit to their own account, not your account), for a total of $9,200 per year in contributions! Even some professional tax software does not account for this correctly, so make sure you are getting the full tax benefit of your contributions.
What if you are not married, which is often the case with LGBTQ+ couples? You can each contribute the single limit, $3,600 (2021 limit), to your respective HSA accounts. If you are both over age 55, you can contribute $3,600 + $1,000, or $4,600 each to your respective HSAs.
As detailed in Nick’s article, you must have an HSA-eligible, high deductible health plan to be able to contribute.
What happens to the account if you die? HSA owners are able to leave their HSA to their spouse income tax-free. An HSA can be left to an unmarried partner at death, but must be emptied and taxed in the year of death. (Not an ideal result). If you aren’t married and don’t plan to get married, but want to leave as much as possible to your partner, you may want to focus your savings in other kinds of investment accounts, such as a Roth IRA or taxable account.
Jennifer Climo, CPA CFP® is a senior advisor at Milestone Financial Planning, LLC, a fee-only financial planning firm in Bedford NH. Milestone works with clients on a long-term, ongoing basis. Our fees are based on the assets that we manage and may include an annual financial planning subscription fee. Clients receive financial planning, tax planning, retirement planning, and investment management services, and have unlimited access to our advisors. We receive no commissions or referral fees. We put our clients’ interests first. If you need assistance with your investments or financial planning, please reach out to one of our fee-only advisors.