Health Savings Account…..why it may be right for you
You’re young. You’re healthy. You don’t expect any large medical costs soon. Should you invest in an HSA? Yes!! If you’re enrolled in a high-deductible insurance plan and want to save on taxes, contributing to a Health Savings Account is a must!
If your employer offers several insurance options, choosing a high deductible plan may be the right one for you. Your current monthly cost will most likely be less than other plans and you’ll be able to save some money for your future. Many employers make HSA contributions on your behalf, helping your account to grow. It’s wise to keep a balance of at least the amount of your deductible. Accidents happen. If you’re ever in need of medical services, you’ll have the funds in your account to pay for your deductible.
The HSA provides triple tax benefits:
- Contributions are pre-tax, reducing your taxable income
- The account can be invested. All income earned is tax-free
- Distributions used on medical expenses are tax-free.
All good news. Now time for some facts.
- 2020 Contribution Limits – The maximum amount that can be contributed is $3,550 for individuals and $7,100 for a family
- Catch up contribution – if you’re 55 years or older – you can contribute an extra $1,000
- Contributions are pre-tax. Reducing your taxable income means extra dollars in your pocket now!
- Income earned in the HSA account is tax-free. This account belongs to you. You can choose how to invest the funds. Even if your employer makes contributions, the account is yours. If you change jobs, the account is still yours.
- The balance that has not been used at year-end rolls to the next year allowing the account to grow. This is NOT a use it or lose it account. It is allowed to grow over time.
- At age 65, the Health Savings Account is treated as an IRA account. You can receive distributions for any purpose and pay the income tax on the distribution. Or you can take distributions for medical expenses tax-free. Unfortunately for most, with age come medical expenses.
- Keep your receipts. You can reimburse yourself for the previous year’s medical expenses (tax-free) as long as the HSA was established before the medical expenses were incurred. That’s right, if you find yourself in need of cash, as long as you have a receipt to support the expense, you can reimburse yourself for past medical expenses, tax-free.
- HSA distributions can pay for Dental and Vision expenses. This includes eyeglasses and contact lenses.
- HSA distributions can pay for COBRA. If you lose your job and incur expenses for COBRA insurance, you can use your HSA account to pay for the premiums. What better time to have access to the cash?
It’s never too late to start! If you’re covered under a high deductible insurance plan then consider opening up a Health Savings Account. Rather than taking distributions for current medical expenses, try to leave the HSA to grow. Save the account for when you’re retired and no longer have a salary. Save your receipts for any medical expenses that you incur, you can always reimburse yourself later.
Young or old, a Health Savings Account is a great savings option. You can enjoy the triple tax benefits while building a sweet little nest egg for your future.
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