About HSAs
- HSA stands for Health Savings Account, which is a special account used to save funds for qualified medical expenses using pre-tax dollars. These expenses can include health insurance deductibles, co-pays, prescriptions, doctors’ appointments, over-the-counter meds, and many others.
- Additionally, HSA funds not used for medical expenses can be used to supplement retirement savings after reaching age 65.
- Authorized banks or custodians house HSAs, where funds can be invested in cash, CDs, stocks, bonds, or managed funds. There is no borrowing or pledging allowed, and typically a certain cash threshold must be met before excess funds can be invested.
Benefits of HSAs
- In a world of rising costs and healthcare expenses (both now and in retirement) HSAs allow those eligible to save in a tax-efficient manner.
- HSA Funds are “triple tax-advantaged”:
- Contributions go in pre-tax.
- Earnings and interest are tax-free if used for qualified expenses and tax-deferred if used to supplement retirement.
- Distributions are tax-free for qualified expenses and taxed as income if used for retirement.
- Unused HSA funds accumulate for your lifetime and pass to your heirs.
- HSA owners have complete ownership of their accounts and they are portable from bank to bank.
Contributions to HSAs
- Those eligible to open and fund an HSA must be a participant in a high deductible health care plan (HDHP) as defined by the IRS and have no other medical coverage, including Medicare. You must also not be named a dependent on someone else’s tax return.
- For 2022 a single HDHP participant can contribute up to $3,650 while a family can contribute up to $7,300.
- Contribution limits are set to increase to $3,850 and $7,750 respectively in 2023.
- HSA owners age 55 or older can contribute an additional “Catch-up” amount of $1,000 annually.
- HSAs allow for a once-per-lifetime rollover from an IRA or Roth to HSA. These contributions are not deductible and are subject to contribution limits.
HSA’s can be a powerful healthcare, retirement and tax planning tool with multiple potential advantages. As each person’s eligibility, goals and financial situation may vary, it is best to consult a financial advisor and tax professional to see if an HSA makes sense for you.
Original content provided by Aaron R. Evans, CFA, CFP® a Senior Advisor at Strategic Financial Services.
This material does not constitute the advice or recommendation of Strategic Financial services, and should not be used as the basis upon which to make investment or financial decisions The content is developed from sources believed to be providing accurate information. Information presented is for educational purposes only and is not intended as tax or legal advice.
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