Using a Health Savings Account to Pay for Long-Term-Care Insurance

You can tap an HSA to pay for long-term-care insurance, but the amount you can withdraw tax-free depends on your age.

Question: Can I withdraw money tax-free from my health savings account to pay my long-term-care insurance premiums? If I can, is there a limit to the amount I can use? Does it have to be for a stand-alone long-term-care policy, or can it be for a life insurance policy with long-term-care benefits, too?

Answer: You can use HSA money to pay premiums for an eligible long-term-care insurance policy, but the amount you can withdraw tax-free each year is based on your age at the end of the year. The older you are, the more you can withdraw tax-free. The amount increases slightly every year, and the limits are per person. In 2018, people who are 40 or younger can withdraw up to $420 tax-free from an HSA to pay their long-term-care premiums. People age 41 to 50 can withdraw $780, those age 51 to 60 can withdraw $1,560, those age 61 to 70 can withdraw $4,160, and if you’re 71 or older you can withdraw $5,200.

To qualify for the tax-free HSA withdrawals or the tax deduction for long-term-care insurance premiums (see below), the policy must be a "qualified long-term-care insurance contract," which includes most stand-alone long-term-care policies currently on the market. Ask your insurer if your policy is eligible. Life insurance policies that can also provide a long-term-care benefit don’t qualify.

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If you don't have an HSA or you don't use HSA money for these expenses, your long-term-care insurance premiums may be tax-deductible up to the same limits listed above. To qualify for the medical-expense deduction in 2018, you must itemize, and your eligible medical expenses are deductible only to the extent that they exceed 7.5% of your adjusted gross income. Your state may offer an additional break from your state income taxes for qualified long-term-care insurance premiums.

Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.