“If you contribute and deduct $500 to an HSA and then spend $500 on qualified medical expenses in the same year, you essentially move your $500 medical deduction away from Schedule A and its 10 percent threshold to the adjusted gross income section on the 1040,” adds Jean-Luc Bourdon, a CPA at BrightPath Wealth Planning in Santa Barbara, Calif. “In addition to increasing the amount deducted, you also reduce AGI, which can benefit various tax calculations.”
HSAs do, however, will require clients to enroll in health plans carrying big deductibles and out-of-pocket expenses—the latter being $13,100 for a family for 2017. Though your client can carry dental, vision, disability and long-term-care insurance, he or she can’t be covered by any other health insurance other than the HDHP, says Grant. Your client also can’t use HSA money to pay for over-the-counter medications and probably can’t use the account for what’s likely their biggest medical expense of the year: health-insurance premiums, says Christopher Wittich, a CPA and senior manager at Boyum & Barenscheer in Bloomington, Minn.
Nevertheless, “it’s worth keeping a close eye on HSAs if and when any health-care reform passes Congress,” Wittich says. “There have been discussions about changing contribution limits, changing the eligible expenses to allow for paying premiums and changing the penalty provisions for non-qualified distributions.”