Medical expenses can be a real burden if not carefully planned for. A Health Savings Account (HSA) is a helpful tool to help lower your taxable income and to pay for medical expenses tax-free.
- Known as the triple tax benefit. Contributions are tax deductible, the interest earned is tax-free, and qualified medical expenses are paid tax-free. It is hard to beat an advantage like this.
- For participants with a high deductible health plan (HDHP). You must be enrolled in a health insurance plan with a high deductible of at least $1,300 for an individual or $2,600 for a family (2017) to qualify to contribute to a HSA. If you are enrolled in Medicare or are claimed as a dependent on another person’s tax return, then you cannot contribute. A nice feature of this plan is that all income levels can contribute, there is no limit.
- Your contributions roll over year after year. As of 2017, each year you can contribute up to $3,400 for an individual or $6,750 for a family (extra $1,000 catch-up if age 55 or older). You do not lose it if you do not use it, instead the funds will accumulate year after year. This is a great advantage to continue to save for future medical expenses.
- Invest your HSA. You have the potential to grow your HSA with investment options provided by the carrier. It is best to explore your options because each carrier is different.
- Your HSA stays with you. Similar to a 401k account, if you change employers or retire, you can take your HSA with you.
- It can become your retirement income. After you reach age 65, you can take a distribution from your HSA for non-medical reasons without facing a penalty. Just like an IRA, you are subject to income tax. This is an extra bonus if you do not use all the funds for medical expenses before retirement age.
- Your spouse inherits your HSA tax-free. When you open a HSA, add your spouse as the beneficiary on the account. If you pass away, your spouse will inherit your HSA as their own.
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