By Jarrett Suddarth
1. What is a Health Savings Account (HSA)?
A Health Savings Account (HSA) is a tax-advantaged savings account that allows individuals to save money for qualified medical expenses. It is designed to work in conjunction with a qualifying high-deductible health plan (HDHP) and offers tax benefits for eligible contributions and qualified withdrawals.
2. How do new attending physicians become eligible for an HSA?
To be eligible for an HSA, you must be covered by a qualifying high-deductible health plan (HDHP), cannot be enrolled in Medicare, and cannot be claimed as a dependent on someone else's tax return. Additionally, you must not have any other health coverage that is not a HDHP. If you meet the eligibility criteria AND your employer offers an HDHP, you will be able to enroll in the HSA when you first start your job. If you picked a different plan when you first signed up for benefits, you can switch to a HDHP and open an HSA whenever your company has open enrollment.
3. How do I open an HSA?
You can typically open an HSA through a qualified financial institution (Fidelity has a great one!) or your employer if they offer an HSA option. You will need to meet the eligibility requirements and complete the necessary paperwork to establish the account.
4. How can I maximize the tax benefits of my HSA as a young physician?
Contributing the maximum allowed to your HSA, strategically investing your HSA funds, and using the funds for qualified medical expenses can help you maximize tax benefits and build a robust healthcare savings strategy. Read more about how physicians can maximize the tax benefits of HSAs!
5. How does having an HSA benefit a high-income earner?
Having an HSA allows you to contribute pre-tax dollars, reducing your taxable income. There are no income limits, which is especially advantageous for high-income earners like attending physicians, providing tax savings while building a fund for future healthcare expenses. HSAs are unique in this, as most tax deductions have income phase-outs.
For example, suppose a new attending physician that earns $250,000 contributes the maximum amount possible to their HSA ($8,300 for family coverage for 2024). This reduces their taxable income to $241,700. If they are in the 24% federal tax bracket, contributing $8,300 to their reduces their federal income tax liability by almost $2,000. That is some major tax savings!
6. How much can a physician contribute to their HSA?
Contribution limits are set annually by the IRS. For the most up-to-date information, please visit the IRS website. Generally, contribution limits vary for individuals and families, and additional "catch-up" contributions are allowed for individuals aged 55 and older.
Unlike other contribution types that phase out or eliminate contributions at higher incomes, the HSA does not discriminate against high-income physicians. No matter your income, the 2024 contributions limits are $8,300 for a family HSA and $4,150 for an individual HSA. The “catch-up" contribution is $1,000.
Unlike a 401(K), any contributions that your employer makes on your behalf count towards your maximum contribution. For example, if your employer contributes $1,000 to your family HSA, you can only contribute $7,300 in 2024.
7. Can I contribute to my HSA during residency and fellowship?
Yes, if you enrolled in a qualifying HDHP, you can contribute to an HSA during residency and fellowship. Starting contributions early can provide a financial head start as you transition into your attending physician role.
8. Can I invest the funds in my HSA?
Absolutely! Many HSAs offer investment options, allowing you to grow your HSA balance through various investment vehicles.
9. What expenses can be paid from my HSA?
HSAs can be used to pay for qualified medical expenses, including doctor visits, prescription medications, and certain preventive care. A list of eligible expenses can be found here. Using funds for non-qualified expenses may result in penalties and taxes.
10. Can I use HSA funds for alternative health treatments?
Yes, as long as the treatments are considered qualified medical expenses according to IRS guidelines This may include acupuncture, chiropractic services, and certain alternative therapies prescribed by a medical professional.
11. Can I use HSA funds for over-the-counter medications?
As of January 1, 2020, you can use HSA funds to purchase over-the-counter medications without a prescription. This change was part of the CARES Act, and it allows for greater flexibility in using HSA funds for a variety of health-related expenses.
12. Are there penalties for withdrawing funds for non-qualified expenses?
Yes, withdrawing funds for non-qualified expenses before the age of 65 may result in a 20% penalty, in addition to regular income tax on the withdrawal. After the age of 65, you can withdraw funds for non-qualified expenses without the 20% penalty, though regular income tax would still apply.
13. What documentation should I keep for HSA transactions?
It's important to keep detailed records of your HSA transactions, including receipts for qualified medical expenses. This documentation can be helpful for tax purposes and in case of an audit. Budgeting apps like You Need a Budget (YNAB) or Mint can be used, if you tag each HSA-eligible purchase. Other websites, like TrackHSA, are specifically designed to keep track of your HSA transactions.
14. How can I keep track of my HSA contributions and withdrawals for tax purposes?
Your HSA provider typically provides annual tax forms, such as Form 1099-SA and Form 5498-SA, summarizing your contributions and withdrawals. Keep these forms for accurate tax reporting.
15. Can I have both an HSA and a Flexible Spending Account (FSA)?
Yes, but with limitations. While you can have both an HSA and a Limited-Purpose FSA (which covers only dental and vision expenses), having a Healthcare FSA may disqualify you from contributing to an HSA. If you have children, you can also utilize a Dependent Care FSA at the same time as an HSA. It's crucial to understand the rules to make informed decisions about your healthcare savings options.
16. What happens to my HSA if I change jobs or start a private practice?
Your HSA is portable, allowing you to keep it even if you change jobs or start a private practice. You can continue to use the funds for qualified medical expenses and make contributions as long as you remain eligible.
17. Are there any limits on how long I can keep an HSA?
There is no time limit on how long you can keep an HSA. Unlike Flexible Spending Accounts (FSAs), there is no "use it or lose it" rule for HSA funds. Your HSA balance carries over from year to year, and you can continue to use the funds for qualified medical expenses.
18. Are there any state-specific considerations for new attending physicians with HSAs?
State tax treatment of HSAs can vary. As of the time of this article, HSA contributions are also considered pre-tax at the state income tax level with the exceptions of California and New Jersey. It's advisable to consult with a tax professional or check your state's tax regulations to understand any state-specific implications related to HSAs.
19. Can I use HSA funds for family members' medical expenses?
Yes, you can use HSA funds for qualified medical expenses of eligible family members (including your spouse and eligible dependents). Integrating HSA usage into your family's financial planning can provide additional financial security for healthcare needs.
20. How does having an HSA contribute to my long-term financial goals as a young attending physician?
An HSA contributes to your long-term financial goals by providing a tax-advantaged way to save for healthcare expenses, potential investment growth, and a supplementary source of funds in retirement. It aligns with building a secure financial future for young attending physicians.
21. Excess contributions - What are the tax implications if I over contribute to my HSA?
If you do happen to over-contribute to your HSA, it’s very important to remove the excess contribution before the tax deadline in the same year it was made. For example, if you over-contributed to your HSA in 2023, the excess contributions would need to be removed by April 15, 2024. If they aren’t removed in time, you will be penalized by the IRS for any excess contributions. As of the time of this article, the IRS penalty is 6% of any excess contribution and is charged annually if they are in the account for multiple years.
To remove the excess contributions, HSA providers have a form that can be filled out and submitted back to them. You also have the option of reclassifying the excess contributions forward to current year contributions.
