A triple tax break has always been available with Health Savings Accounts and this has made it an important financial planning tool. However, recent changes have been made to make having an HSA even more useful. Some of these changes are explained in more detail below.
Tax-free withdrawals for over-the-counter medications.
Money is now able to be withdrawn from an HSA tax-free to pay for over-the-counter medications. The Coronavirus Aid, Relief and Economic Security (CARES) Act reversed legislation passed in 2009 that only permitted money to be withdrawn for prescription medication.
Tax-free withdrawals for menstrual and feminine hygiene products.
The CARES Act also changed the rules regarding feminine products such as pads and tampons. These expenses have never been eligible for withdrawal before, but it is estimated that women spend over $4000 on feminine products during their lifetime so this new rule will be a real help.
Tax-free HSA withdrawals for health insurance premiums when you’re unemployed.
If you are receiving unemployment benefits, then you are able to withdraw money tax-free from the HSA in order to pay your health insurance premiums. You will need to keep a record of the dates that you were in receipt of unemployment benefit to prove your eligibility.
If you can afford to pay for your medical expenses yourself at the moment, then you should save your receipts, so you are able to withdraw from your HSA at a later date. This will allow the money in this account to grow tax-deferred for a bit longer. You can use any receipts from January 1st, 2020, so make sure that you keep them safe.