Demystifying Form 5498-SA: Understanding Your HSA Contributions and Distributions

Demystifying Form 5498-SA: Understanding Your HSA Contributions and Distributions

Health savings accounts (HSAs) have become increasingly popular as a way for people to save money on medical expenses. However, many people are confused about the paperwork that comes with them, particularly Form 5498-SA. In this article, we’ll demystify Form 5498-SA and help you understand your HSA contributions and distributions better.

What is Form 5498-SA?

Form 5498-SA is an annual tax form that reports contributions made to your health savings account (HSA) during the previous year. Your HSA administrator is required to send you a copy of Form 5498-SA every year by May 31st. It’s essential to keep this form for your records and to provide it to your tax preparer.

Understanding Your HSA Contributions

The amount of money you can contribute to an HSA each year is set by the IRS. In 2021, the contribution limit for individuals is $3,600, and for families, it’s $7,200. If you’re over 55, you can contribute an additional $1,000 per year as a catch-up contribution.

One of the advantages of HSA contributions is that they are tax-deductible. This means that you don’t pay taxes on the money you contribute to your HSA, which can reduce your taxable income.

Understanding Your HSA Distributions

HSAs are designed to cover medical expenses that your health insurance plan doesn’t pay for, such as deductibles, copays, and coinsurance. When you use your HSA funds for qualified medical expenses, you don’t pay taxes on those withdrawals.

However, if you withdraw money from your HSA for non-medical expenses, you’ll have to pay taxes on those withdrawals, plus a 20% penalty if you’re under 65. After you turn 65, you can withdraw money from your HSA for non-medical expenses without penalty, but you’ll still have to pay taxes on those withdrawals.

It’s essential to keep receipts for all medical expenses paid out of your HSA. This will help you keep track of your expenses and provide documentation if the IRS ever audits your tax return.

Conclusion

Form 5498-SA is a critical document that reports your HSA contributions and assists you in better understanding your HSA distributions. Contributing to an HSA can help you plan for medical expenses and save money on your taxes. However, it’s essential to keep track of your HSA contributions and distributions and use your HSA funds for qualified medical expenses to avoid penalties and taxes. Remember to keep all receipts for medical expenses paid for with your HSA and provide your tax preparer with a copy of Form 5498-SA every year.

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