In case you have a well being financial savings account however not sufficient cash to cowl your medical bills, you aren’t essentially doomed to insurmountable debt — even should you owe on outdated medical payments.
Alexandra Wilson, a Licensed Monetary Planner in Atlanta, used her HSA contributions one yr to cowl medical payments she incurred the earlier yr when she gave beginning to her daughter.
She had front-loaded her HSA in anticipation of her daughter’s arrival. However as so many new mother and father uncover, Wilson ended up making extra visits to her pediatrician post-delivery.
As a substitute of racking up debt or digging into her common financial savings, she elevated her HSA contributions and used that cash to repay the payments.
“You’re saving cash since you’re not having to pay taxes on that cash,” Wilson stated.
Wish to know how one can begin paying down outdated medical debt together with your HSA? Learn on.
The right way to Use an HSA to Pay Off Medical Debt
Cash that you simply put into an HSA is yours to maintain — not like a versatile spending account, which has a use-it-or-lose-it annual requirement.
For those who (or your employer) have contributed to your HSA, you might have some financial savings constructed up. Right here’s find out how to know if you should use that cash to repay outdated medical debt.
If You At present Have an HSA
Utilizing your HSA to repay outdated medical debt relies upon the reply to at least one query: Did you incur the debt earlier than you arrange your HSA?
If the reply is “sure,” you can not use the HSA.
If the reply was “no,” you possibly can.
Even when your medical debt is in collections, you can also make funds utilizing your HSA card — simply make sure you come up with the money for in your HSA to cowl the expense.
Let’s say you’ve been contributing $100 a month to your HSA for one yr. You’ve got $1,200 within the account if you break your arm and go to the emergency room.
You find yourself getting a invoice for $2,000, which is $800 greater than you will have in your account. Don’t panic.
You should utilize the $1,200 you’ve already saved to pay a part of your invoice, then use your common $100 contributions to the HSA to make month-to-month funds in your invoice for the subsequent eight months — the excellent news is that the majority healthcare suppliers will comply with cost plans.
With older debt, it may not be so simple as a swipe of your HSA card, significantly should you initially paid the invoice utilizing a bank card.
It’s possible you’ll have to name your HSA supplier and supply receipts to get approval. Assuming you do get approval, you’d primarily be reimbursing your self out of your HSA.
You’ll must report all HSA distributions on tax kind 1099-SA if you file your tax return. However as long as you used the cash for medical bills, these distributions should not taxable.
If You Had an HSA within the Previous
Let’s say you used to work for an employer that supplied you a high-deductible well being care plan and also you added cash to the HSA. Then you definately acquired a brand new job (or switched plans), and also you signed up for medical health insurance that wasn’t excessive deductible. What occurs to your HSA?
“You possibly can nonetheless proceed to make use of your HSA — you simply can’t contribute to it whilst you don’t have a excessive deductible well being plan,” Wilson stated.
The HSA annual contribution limits for 2023 are $3,850 for people and $7,750 for household protection.
Meaning you should use financial savings from an outdated HSA to pay for this yr’s medical bills or different outdated medical debt, as long as you incurred that expense after you opened the HSA.
And what occurs to the cash you don’t use?
That account is sweet ceaselessly and can be utilized to pay for future medical bills. When you flip 65, you should use cash in your HSA for non-medical bills. You’ll pay earnings taxes on the non-medical withdrawals, as you’ll with a 401(okay).
Nevertheless, should you go away your present employer or swap well being plans, your HSA could cost you a month-to-month administrative charge. Charges range by plan however are usually $5 monthly or much less. They’re often waived in case your HSA stability is above a specific amount (sometimes $1,000 to $5,000).
For those who meet the plan’s minimal financial savings threshold, you’ll have the choice to speculate the cash in your HSA so the funds in your account can develop.
Which implies that HSA may assist maintain you bodily — and fiscally — wholesome for a very long time.
Tiffany Wendeln Connors is deputy editor at The PNW.
Rachel Christian, a Licensed Educator in Private Finance and a senior author for The PNW, additionally contributed.