Of course we all love our HSAs. But there may come a time when you find yourself in a position without a qualified HSA health plan. There is no need to panic. You may not realize this, but you have been preparing for this type of dilemma.
You also might find yourself in a situation where you no longer work for the company that provided your insurance, no longer have a qualified health plan or have no health insurance at all. If you can relate, keep reading…help is on its way.
You can still deposit to your health savings account even though you are no longer on the qualified health plan. Deposits are pro-rated based on the number of months you had the qualified insurance. If you have not deposited your pro-rated amount at the time your insurance coverage ends, you have until April 15 of the following year, or the date you file your taxes (which ever comes first) to make those deposits and maximize your tax benefits.
HSA Account Options
If you’re worried about the funds in your account, don’t be. Your health savings account was opened in your name and is owned by you. Your account remains with you even after your HSA-qualified insurance ends, if you get on non HSA-qualified insurance, or if you change jobs.
If you keep your account open and enroll in a qualified health plan at a later date, you can resume making deposits into your HSA.
You can let the funds grow in your account until age 65. At that time the HSA can also be used as a retirement fund. You can either pull the money out for any use (non-qualified medical expenses) and you will pay income tax, but no penalty. Or you can continue to use the funds tax-free for qualified medical expenses.
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The funds in your HSA can also be used to pay COBRA premiums. If you elect COBRA, you can also continue to make deposits into your account up to the maximum amount allowed each year.
If you have incurred qualified expenses since the date your HSA was opened, you can reimburse yourself for those expenses without paying a penalty or taxes (provided the expenses were not already paid from your HSA or by your insurance carrier). You can reimburse yourself for any family member’s expenses, even if that family member was not covered under the insurance. However, they would need to either be claimed as a dependent, or be a joint filer on your taxes (spouse).
HSA funds can only be rolled into different HSAs. The funds cannot be rolled into any other type of account (such as an IRA).
If you chose to close your account, you will pay a 20% penalty and income tax on funds that were not used for qualified medical expenses. These are payable at the time you file your income tax return.
So just because you happen to find yourself in a position where you have HSA funds but no longer have a qualified health plan to go with it, you can still enjoy the benefits of the HSA! After all you saw the value in contributing and saving money in your HSA. Don’t worry. Be happy.
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