One of the most underappreciated tools in tax planning is the Health Savings Account (HSA). The HSA was created in 2003 as a way to provide tax benefits for Americans who want to set aside funds for future healthcare expenses. There are many benefits to having an HSA besides helping pay for medical services.
They have tax advantages. Contributions to your HSA reduce your taxable income in the year you make them. The funds are invested, grow over time, and grow without being taxed, and withdrawals are tax free. HSA can be invested in bank accounts, money markets, mutual funds, and individual stocks. By investing your HSA, the funds have the potential to grow exponentially over time.
Others can contribute on your behalf. Your employer, relatives and even friends can add to your account.
HSA dollars are versatile. HSA dollars can be used for a wide variety of qualified expenses such as coinsurance, deductibles, dental and vision care, prescriptions, and Medicare, Medigap, and COBRA premiums. They can also be used for retirement healthcare costs.
HSA money goes where you do. Unlike FSA accounts, which are funded with pretax dollars and must be spent within a year or you lose the money, HSAs are safe for the future. Not only do they roll over year to year, but they follow you even if you leave your current job.
They’re kind of like super IRAs. HSA’s have similar benefits to our IRAs, but more so. HSAs allow employer contributions while IRAs do not. HSAs do not have the required minimum distributions like IRAs do. If you don’t use your HSAs for medical care, you can use the HSA money as advance aged traditional IRA raise after the age of 65 without penalties. You will have to pay income taxes on the funds, however.
To save for an HSA, I recommend the following: 1. Invest in your 401(k) first, to get the full employer match. 2. A mix of contributions to a traditional or Roth IRA. 3. Contribute as much as possible to your HSA up to the maximum annual limits.
Here’s to a healthy and prosperous future.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Joe Limke and not necessarily those of Raymond James.
Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation
Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information.