What is a Limited HSA? - Understanding the Basics of a Limited Health Savings Account

Health Savings Accounts (HSAs) are valuable tools for managing healthcare expenses while saving on taxes. A Limited HSA is a specific type of HSA that has some restrictions on its use compared to a traditional HSA.

Here are the key points to understanding a Limited HSA:

• A Limited HSA is designed for individuals who are enrolled in a High Deductible Health Plan (HDHP) but are also covered by certain types of health insurance that provide coverage before the HDHP deductible is met.
• Contributions to a Limited HSA are limited to a lower annual maximum compared to a regular HSA. In 2021, the maximum contribution for an individual with self-only coverage is $3,600 and for those with family coverage is $7,200.
• With a Limited HSA, the funds can only be used for eligible medical expenses until the HDHP deductible is met. Once the deductible is satisfied, the Limited HSA functions like a traditional HSA, allowing for withdrawals for any purpose without penalty.
• It's important to carefully review the specific terms and conditions of a Limited HSA to understand what types of coverage are allowed before the deductible is met and how funds can be utilized accordingly.

By knowing the ins and outs of a Limited HSA, individuals can make informed decisions about their healthcare savings and expenses while maximizing the benefits of this tax-advantaged account.

Health Savings Accounts (HSAs) serve as an excellent means to ease the burden of healthcare expenses while allowing individuals to save on taxes, but many people might not be familiar with the nuances of a Limited HSA.