Most people are unaware of the significant benefits a Health Savings Account (HSA) offers and why you should consider maximizing the contributions when you have access to a high-deductible health plan (HDHP).
Benefits
Triple Tax Advantages
- Tax-deductible contributions: Contributions to an HSA reduce your taxable income.
- Tax-deferred growth: Funds grow without being taxed.
- Tax-free withdrawals: When used for qualified medical expenses, withdrawals are tax-free.
Control over investments
You have the flexibility to invest your HSA like those in other qualified retirement accounts.
Payment of Premiums
HSA funds can be used to pay for certain medical premiums, including Medicare premiums and long-term care insurance premiums (subject to limits).
Catch-Up Contributions
Individuals aged 55 and older can make an additional catch-up contribution each year, on top of the maximum contribution limit.
Portability
The HSA stays with you even if you change employers, and unused funds roll over to the next year.
Qualifying health care costs
Examples of qualified medical expenses include dental care, vision, hearing, of which none are covered under a standard Medicare plan.
Tax-free reimbursement
When paying out of pocket now for health costs, you can withdraw HSA funds in the future to pay yourself back (tax-free) for those earlier expenses.
Using as a Retirement Supplement
In your later years, many experience higher than expected medical costs due to unforeseen health issues or mistakenly assume Medicare will cover all their bills. An ideal way to supplement those expenses is to pay for present-day health costs out of pocket through other savings and allow the HSA to grow tax-deferred like your other retirement accounts.
