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.
1. 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.
2. 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 $1,350 for an individual or $2,700 for a family (2018) 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.
3. Your contributions roll over year after year.
As of 2018, each year you can contribute up to $3,450 for an individual or $6,850 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.
4. 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.
5. Your HSA stays with you.
Similar to a 401(k) account, if you change employers or retire, you can take your HSA with you.
6. 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.
7. 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.
Let's Keep The Conversation Going
Send Emma Bahneman a note.