Health savings accounts (HSAs) are the best savings and tax strategy in many years.
Why? They are triple tax-free!
How can that be, you ask?
- You do not pay income tax on the contribution to the HSA.
- If you invest the contributions and earn dividends and interest, you do not pay any tax on that income or any capital gains.
- When you withdraw the funds for medical expenses, you do not pay income tax so the contribution, earnings and any appreciation are tax-free.
Who can have an HSA?
Only those who have a qualified high-deductible health plan (HDHP).
Who should have an HSA?
High income earners (who have HDHP insurance) and can afford to pay the high deductible out of pocket and invest the contributions for growth. Since HDHPs have high deductibles that must be met before the insurance will pay, it is important to have cash available to pay for any medical expenses up to that limit. Of course, it is available if you really needed it.
When should you spend your HSA?
Ideally, you can wait and use it in retirement after it has had time to grow. The growth will be tax free if used for qualified medical expenses (incurred from the time you had HDHP so save those receipts for large tickets items such as braces or long-term care premiums).
If you need your HSA before retirement, is it available?
Yes, it is. You can spend your HSA any time for qualified medical expenses. If spent on non-qualified expenses, then you would pay ordinary income tax plus a 20% penalty.
Are HSAs for everyone?
No. If you do not have cash available to pay the deductible, this may not be the best option for you.
To learn more about HSAs, please reach out to your Relationship Manager.