Add an HSA to a Special Needs Financial Plan

Learn how to use an HSA within your financial plan, especially if you’re a caregiver for a person with a disability.

What is an HSA?

A Health Savings Account (HSA) is a way to increase your spendable income and save money on taxes. HSAs work with a high-deductible health plan to help you invest for future expenses while paying for everyday costs like copays, prescriptions and more. You can use the account for all eligible out-of-pocket medical expenses, including those for your covered spouse and dependents.

How does an HSA work?

The IRS sets an annual per-person or per-family limit that you and your employer can agree to meet. Then, your pre-tax dollars are transferred into the account every month. If you contribute the maximum amount allowed each year, you’ll fully benefit from the tax savings, withdraw funds anytime you need them, and continue to save for the future.

Should I assign beneficiaries?

If your loved one with disabilities qualifies for government benefits, an HSA under their name can disqualify them. Consider a Special Needs Trust (SNT) or an ABLE account for your loved one, as it can stand in as the beneficiary for your HSA and any other financial assets, without putting government benefits at risk.

Am I eligible for an HSA?

You may be a great fit for an HSA if you have:

  • Qualifying High-Deductible Health Plan (HDHP) coverage.
  • Medical expenses to plan and pay for, like copays.
  • A desire to save and invest for your retirement.
  • A plan for your own or a loved ones’ future care.

Plan for special needs with an HSA

HSA benefit: Triple-tax advantaged.

Special needs application: Your HSA grows with you, tax-free. Pre-tax contributions reduce your taxable income, and withdrawals for eligible expenses are not taxed. When it comes to means-tested government benefits, however, contributing to an HSA doesn’t reduce your countable income, and HSA funds will count as resources, so plan accordingly. An HSA in the name of a caregiver can be a valuable planning tool for expenses related to a covered dependent. Always consult with your specialist advisor and attorney to understand the rules related to government benefits.

HSA benefit: Works well with others.

Special needs application: Pair with a Flexible Spending Account (FSA). If you’re not eligible for an HSA or you want to complement one, a tax-advantaged FSA allows you to save and spend money on eligible medical expenses and dependent care throughout the year. But unlike an HSA, the funds don’t roll over — so they’re not accruing interest or available over time. You can use your FSA for shorter term expenses, and build up HSA investments for the long term.

Pair with an ABLE account. An ABLE account is another way to save and spend for disability-related expenses, similar to a special needs trust. Like an HSA, an ABLE account has some tax advantages and can be used for short-term spending or long-term investing. The main difference in taxation is that the HSA is funded with pre-tax funds, while the ABLE account is after-tax. Of course, the allowable expenses are different, and ABLE accounts are not counted as assets for means-tested benefits. Used properly, ABLE and HSA accounts can work together as you manage your cash flow now and in the future.

HSA benefit: Supplement health insurance benefits.

Special needs application: Your health insurance plan may cover your minor children and adult dependents with disabilities, but the deductible and copays might make cash flow difficult. And, your health insurance coverage might exclude some necessities for your loved one with disabilities or special needs. An HSA is there to help fill in the gaps.

An HSA can be used to pay for emerging technologies, experimental drugs and other medical related expenses that your insurance may not cover. If your doctor orders or prescribes it, you should be able to pay for it with an HSA. This can include things like home modifications, ABA therapies, special diets, vitamins, autism programs and more.

HSA benefit: Rollover funds.

Special needs application: You may not know what the future holds in terms of expenses for your loved one with special needs or disabilities, so accumulating savings in an HSA is a great way to stay prepared. Your HSA account and funds stay with you, even if you change jobs. Funds can be rolled over, so you’ll never have to “use-it-or-lose-it.” In a special needs situation this is especially helpful, because dependents may be able to stay on a parents’ plan beyond typical ages, so the benefits may span multiple jobs for the covered worker. This feature makes your HSA another source of resources for a lifetime of care.

HSA benefit: Save into retirement.

Special needs application: An HSA can be a valuable retirement savings vehicle since unused funds can be invested and grow for the long term. Caregivers who are trying to balance saving for their own retirement with providing care may find this option helpful.

If you or your covered dependent is on Medicare, you’ll be able to use HSA funds to help pay for the premiums, as well as for long-term care policies.

Plan ahead by saving your receipts. If you don’t need the reimbursements now, or at the time of the medical care — you can take them out later, even well into your retirement years.

HSA benefit: Debit card and/or easy online access.

Special needs application: If you’re an individual with special needs or a caregiver for a person with a disability, you know that keeping good records is key. HSAs help you keep track of every penny saved and spent with online profiles and debit cards that are simple to access and use.

Action steps:

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