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How HSA's Save you Money

How HSA's Save you Money

Over the years, supplemental health savings programs have been created for individuals to save additional funds for unreimbursed medical expenses. The Health Savings account is one of those plans with unique financial advantages. Contributions to HSA’s are tax-deductible (like an IRA or 401(k) contribution) and they are also tax-free for medical purposes (like Roth or Roth 401(k) contributions). HSA’s can be great vehicles to save for medical expenses now, but they also can be a great way to save for healthcare expense down the road as well. Since we are all going to incur healthcare expenses in retirement, the HSA is a great supplemental savings vehicle for retirement, paired alongside traditional retirement savings vehicles.

Here’s a visual example of the tax benefits of using an HSA: HSA example

In terms of setting up an HSA, you would have to pair the HSA with a high deductible healthcare plan. This healthcare plan can be utilized by self-employed business owners or by individuals whose companies have a high deductible healthcare plan in place. Another rule is that you cannot be enrolled in Medicare, have other health coverage or be claimed as a dependent on someone else’s tax return.

HSA accounts are meant to be used for medical expenses. If you withdraw from them for non-medical expenses, the money is taxed as ordinary income with a 20% penalty. This penalty is waived for individuals over age 65 or disabled.

For 2018, individuals can save $3,450 or families can save up to $6,900. There is a catch up contribution for those over age 55 of $1000.

HSA’s are unique because there is no time frame to use contributions, unlike FSA accounts. If funds are not used in a current year, you can carry them over to the next year. If the HSA holder passes away, their spouse can continue using the account in their name.

In conclusion, if your employer has a high deductible healthcare plan or you are self-employed and purchase this type of insurance, consider utilizing and HSA for its unique tax-advantages and as a supplemental health savings account for now or retirement.