You might have already noticed or heard of the Health Savings Account (HSA) deduction on your income tax forms. Up to $6,150 (families) or $3,050 (individuals) of your HSA contributions are tax-deductible. This isn’t only a tax advantage; it ultimately means more affordable health coverage for you or your family. So, it might be very beneficial for you to become familiar with HSAs.
HSAs marry high-deductible, lower premium health insurance plans with tax-advantaged savings accounts. Although you’ll pay significantly less in premiums for HSA qualified plans than other more traditional health insurance plans due to the high-deductible aspect, it’s still quality coverage. Even areas like preventive care are included.
The money that you’d have otherwise spent on more expensive coverage options can be deposited into an HSA, and it would then be free to grow from a tax-deferred position. So long as you use your HSA dollars for qualified medical expenses, you’d also be able to make untaxed withdrawals. Areas like your health plan deductible and uncovered dental and vision care are just a few examples of qualified medical expenses. Any leftover funds in the HSA at the end of the year will roll over to the next year. Keep in mind that you, not your bank or insurance company, own the account and its funds. This means that you’re the one deciding when to save and when you need to spend.
You might have heard that the new health care laws recently changed some aspects of HSAs. However, the three-pronged tax advantage remains the same – HSA deposits are still tax-deductible, interest can still grow in a tax-deferred state, and withdrawals for qualified medical expenses aren’t subject to taxation.
In addition to the above, those 65-years-old and up will not suffer a penalty for using HSA dollars for non-medical expenses so long as they pay regular income taxes. For those at least 55-years-old and not yet eligible for Medicare, you’ll have an even greater tax advantage from being able to make an additional $1,000 annual HSA contribution. Also, any HSA owner can make a transfer from their IRA, but this can not exceed the annual contribution limit and is limited to a one-time transfer.
It’s often later in life when medical needs become the greatest and most costly. Most HSA providers will offer several different investment options, such as stocks, bonds, and mutual funds, that will help you to build an even greater medical nest egg for your future medical needs.
In summary, it’s all of the combined features and advantages that make HSAs a financially appealing option for many individuals and families. After all, who wouldn’t want to build their savings for current and future medical expenses from a position that’s so tax advantageous?