Within the last year and a half, my wife and I have had to change our insurance plan twice. And in the midst of researching our options, I learned a lot about High-deductible Health Plans, and the supporting role of a Health Savings Account. But one thing I was unsure of, was the use of an HSA in regard to dental expenses. So, after some extra research, here’s what I found.
Can you use your HSA for dental expenses? Yes, you can use your HSA to pay for dental expenses. Though, the expenses must qualify as “medical care”, which the IRS defines as the, “diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.”
In other words, you can use your HSA to pay for a teeth cleaning, because that qualifies as preventative care. However, procedures that aren’t considered preventative, or medically necessary, will not qualify for payment with your HSA.
There is a lot to cover with Health Savings Accounts, and if you are new to the subject, they can be quite confusing. So, for the rest of this article, I am going to do my best to answer any questions you might have in regard to the use of your HSA for dental expenses.
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What Is An HSA?
First of all, HSA stands for Health Savings Account. And, as the name suggests, it is a savings account for expenses related to your health and physical well-being. Though, unlike a normal savings account, HSAs come with a number of restrictions and benefits, and it’s important you know what they are.
Who Can Open An HSA?
In order to open an HSA, you need to be enrolled in a High-deductible Health Plan, or HDHP. But you might be wondering, what is considered a high deductible? Well, according to the IRS, a health plan qualifies as an HDHP if the deductible is greater than $1,350 for an individual, or $2,700 for a family. So, unless your health plans deductible meets those requirements, you cannot open an HSA.
Tax Benefits Of An HSA
One of the best things about an HSA — if not the best thing — is the tax advantage you get. The money you put into an HSA isn’t taxed on either end, provided the money is used for qualifying medical care. It is just subtracted from your taxable income. (Gotta love that!)
In other words, you aren’t taxed on the money you put into an HSA, and you aren’t taxed when you pull it out to pay for a medical expense. The best part is, once you crest $2,100 in HSA savings, your money becomes eligible for investing. So, in essence, you can start investing your money as if it were a retirement account. In fact, you can carry an HSA into retirement and use it for medical expenses as you get older. Oh, and the money you make will also be tax free as long as it’s used for medical expenses.
As of January 1, 2020, you can contribute a maximum of $3,550 to your HSA if you are on an individual plan, and $7,100 as a family.
You Can Invest Your HSA
As I mentioned earlier, once you reach $2,100 in HSA savings, you become eligible to start investing the money. And any return you make on the money will grow completely tax-free. And this is where the power of compound interest comes into play.
Here’s a hypothetical scenario for you. If you were to max out your HSA limit each year as an individual, and average $1,000 in annual medical expenses, you would be able to invest $2,550 per year through your HSA. If you extrapolate that over the course of 30 years — averaging an 8% annual return — your money would grow, tax-free, to over $300,000. That’s some seriously good medical savings if you ask me.
Oh, and after you reach retirement age, you can pull the money out of your HSA, similar to a traditional IRA. So, if you happen to pile up a little too much cash in your HSA for retirement, you can pull it out without the added penalty.
Using Your HSA For Dental Expenses
When it comes time to use your HSA for dental expenses, there are a couple ways you can go about it. First off, if the bank through which you set up the HSA provided you with a debit card, you can just use that to pay for qualifying medical expenses. Though, I only recommend doing this if you are 100% positive that the expense qualifies as medical care.
If you are unsure, I highly recommend that you play it safe, and just pay for your dental expenses as you would if you didn’t have the HSA. Then, once you have checked to make sure the expense qualifies as medical care, you can reimburse yourself from your HSA.
This is a perfectly legitimate way to pay for your dental expenses through your HSA. In fact, it can help you avoid a costly penalty for using your HSA for a non-qualified expense. Better safe than sorry.
Can You Use Your HSA For Other People’s Dental Expenses?
According to the IRS, you can use an HSA to pay for the medical care of your spouse, and any dependents you claim on your tax return. Additionally, you can use it for someone you could have claimed on your tax return, provided they do not have a gross income of $4,150, and did not file a joint return.
In other words, you can use it for your spouse and dependents. You can’t just use your HSA to pay for the medical care of any individual.
For more information on who you can use your HSA for, you can read the official IRS documentation here.
Can You Use Your HSA For Braces?
I suspect this will come as good news to most people. In general, you can use your HSA to pay for braces. This goes for both children and adults. And, while you might think braces would be considered a cosmetic dental procedure, there are actual medical benefits to braces; which is why they generally qualify.
That said, I obviously can’t guarantee that every orthodontic circumstance will qualify, so you should talk to your orthodontist about it before you start spending money on braces. Always do your own research before spending money from your HSA.
Can You Use Your HSA For Cosmetic Dentistry?
In general, if you want to use your HSA for cosmetic dentistry, you will need to get a Letter Of Medical Necessity from your dentist. Otherwise, the expense will not be viewed as medical care by the IRS, and will therefore not qualify.
So, if you want to get your teeth whitened, or take it a step further and get veneers, be sure to talk to your dentist first. Dental procedures for strictly cosmetic reasons do not qualify as medical care under an HSA.
What Happens If You Use Your HSA To Pay For A Non-qualifying Dental Expense?
While HSAs are great for qualifying medical expenses, you do not want to use the money for anything else. If you use the money in your HSA for anything other than medical care, you will be required to pay taxes on that money. Worse than that, you will have to pay a 20% penalty on the money you spent.
So, if you were to use your HSA to pay for a non-qualifying dental procedure that cost $1,000, you would owe a penalty fee of $200. Additionally, the money you spent would be added to your taxable income, which could cause you to owe the IRS money when you go to pay your taxes.
This is why you need to be extra careful when using the money in your HSA to pay for anything; especially expensive dental procedures. Once again, if an expense seems questionable, pay for it with your normal debit card, and reimburse yourself later, once you know that it qualifies.
As with any financial matter, you should take plenty of time to get to know your HSA. Every HSA has its own subtle differences, and it is up to you to understand them.
So, spend some time discussion your HSA with your employer. Figure out which dental expenses qualify, and which do not. Also, be sure to ask about your investing options, and exactly how to go about doing that.
It’s your money, use it in the wisest manner possible.