Get to Know Health Savings Accounts

Pay for medical expenses and save for retirement using a tax-advantaged Health Savings Account.

Laura Adams, MBA
4-minute read
Episode #84

Qualified Medical Expenses

Funds in an HSA are meant to be used for payment of current and future qualified medical, dental, and vision expenses that are not covered by the high-deductible health plan. There are many qualified expenses, and some that you might not expect, like acupuncture, bandages, capital expenses for home improvements related to medical needs, addiction therapy, and lead-based paint removal!

Check out the complete list of qualified medical expenses in IRS Publication 502. You'll find a link to this document in the show notes - and remember you can search for any IRS topic at irs.gov.

Be aware of something very special about HSAs. Even though non-prescription medicines are not considered a qualified medical expense for deduction from income taxes, non-prescription medicines do qualify as valid expenses for HSA purposes!

So think about the beauty of being able to pay for eligible over-the-counter medications with pre-tax money. This could include items such as antacids, allergy medications, pain relievers, cold and cough medicines, first aid ointments, motion sickness pills, etc.

According to the U.S. Department of the Treasury website, a qualifed medical expense must be "primarily for the prevention or alleviation of a physical or mental defect or illness". This means you cannot use HSA funds to pay for items that would be considered toiletries such as toothpaste or cosmetics.

If you use your HSA money to pay for anything other than qualified medical expenses, the money will be taxed as income, plus be subject to a 10% tax penalty. This penalty is waived if you're 65 years of age or older or are disabled. So if you have remaining funds in an HSA at age 65, they can be used for retirement, penalty-free. Remember that any non-qualified expenses would still be subject to regular income tax.

I hope the benefits I've reviewed will encourage you to investigate more about HSAs or to have a goal to invest the annual maximum if you already have one. Think about HSAs as a way to pay medical bills with tax free money AND a way to save for retirement all wrapped up in one great program!

Can you pay insurance premiums with HSA funds? Find out in this Quick Tip.


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Money Girl is part of the QD Now network. You can find show transcripts, contact information, and all of the other great Quick and Dirty Tips podcasts at quickanddirtytips.com. I'm glad you're listening.

Chi-Ching, that's all for now, courtesy of Money Girl, your guide to a richer life.

Additional Resources:

IRS Publication 969

Image courtesy of Shutterstock


About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.