Americans are facing an unprecedented economic and public-health crisis resulting from the coronavirus. As COVID-19 spreads throughout the country, it's more important than ever to make sure you have the money to cover healthcare costs.
While some insurers have waived co-pays on coronavirus tests and even on treatments, not all insurers will cover all expenses. And even if you and your loved ones avoid the virus, income cuts and job losses could possibly make it harder to cover even routine medical bills.
To make sure you're prepared to pay healthcare expenses, it's a good idea to put money into a health savings account (HSA) if you're eligible and have the funds.
Why a health savings account is a smart move
HSAs provide really generous tax benefits. You can take a deduction for your contributions to the account, And if you take money out for health costs, you won't be taxed on withdrawals.
That means the account provides a better tax break than 401(k)s and IRAs, both of which allow deductible contributions but only taxable withdrawals.
The good news for taxpayers worried about covering healthcare costs is that you can still claim your HSA tax break for the 2019 tax year. You have until the tax filing deadline to make deductible contributions, and this year, that's been pushed back to July 15.
If you contribute for the 2019 tax year, you won't have to wait until you file your returns in 2021 to benefit from the savings the HSA provides. You can put money into your HSA right now and get a bigger refund (or reduction in your tax bill) when you need it most.
Who is eligible to contribute to an HSA?
Not everyone can benefit from the ability to make deductible HSA contributions. You qualify if you have a high-deductible health plan. For 2019, that's defined as a plan with an individual deductible of at least $1,350 or a deductible of $2,700 or higher on a family plan. Your plan also must cap out-of-pocket spending at $6,750 or less for individual coverage, or $13,500 for family coverage.
How much can you contribute to an HSA?
If you're eligible, you can contribute up to $3,500 if you have individual coverage or $7,000 if you have a family plan. If you're 55 or older, you can also make an additional $1,000 catch-up contribution.
If you contribute the maximum, you'll see significant savings on your 2019 tax bill. A $7,000 contribution could reduce your taxes by as much as $1,540 if you're in the 22% tax bracket.
You'll reap these tax savings now if you make your contributions for last year before the extended July 15 deadline. The larger refund or reduced tax bill will offset the cost of your contribution during these challenging economic times.
2019 HSA contributions can help cover care anytime
Money you put into your HSA can be used to cover healthcare costs over the coming years, or you can leave the money in your account as long as you want if you don't have a pressing medical need.
In fact, you can invest and let your HSA balance grow until retirement, when you have the option to withdraw it for any reason after age 65 (although you'll pay taxes on withdrawals if you don't use the money for qualifying medical expenses).
With so much uncertainty about the economy and with an insidious virus spreading across the country, shoring up your healthcare savings and making sure you have money to cover your deductible are well worth it. You'll get your tax savings soon and will have the peace of mind of knowing you can pay for healthcare if you or a family member needs it.