Do you have the option to open a Health Savings Account (HSA)? An HSA is a tax-advantaged savings account that can be utilized by individuals and families who are enrolled in High Deductible Health Plans. Establishing an HSA allows you to set aside pre-tax dollars to pay for qualified medical expenses that are not covered by your health insurance.
The contribution limits are $3,600 per year for an individual and $7,200 for a family for folks under 55 and increase by $1,000 for those 55 and older. Both your contributions and any interest earned are tax-free. You also do not incur a tax bill when you take a distribution to pay for qualified medical expenses. Similar to an IRA, if you remove funds for reasons other than qualified medical expenses, you will be assessed a 20% penalty as well as taxes on the amount you withdraw.
One of the most compelling reasons to establish an HSA is if you stick to using the money for qualified expenses only, it’s a great way to save tax-free, and can become an integral part of your financial plan.
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What Does an HSA Cover?
You can find a detailed breakdown of qualified medical expenses on the IRS website, but nearly all medical and dental services are eligible. The list is very inclusive with the intention of covering anything that falls within the healthcare umbrella. Some of the most common expenses are:
- Annual physical exams
- X-Ray scans
- Hospital services
- Prescription medication
- Long term care
- Mental health services
- Dental treatment
After you turn 65, you can still take tax-free withdrawals for qualified medical expenses. However, if you enroll in Medicare Part A and/or B, you can no longer contribute pre-tax dollars to your HSA. While money taken out to cover healthcare costs continues to be tax-free, withdrawals made for other purposes will be taxed at your current rate.
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Frequently Asked Questions About HSA’s
Some of the common questions you should consider asking your financial advisor are: Do I qualify for an HSA, and would it be wise for me to establish one as part of my retirement planning? Your advisor can help with setting up an HSA if you do not already have one and make it a part of your financial plan.
Many folks are not aware that they have the option of investing the funds in their HSA rather than leaving the money in a low-return savings account. This is critical because you can grow and earn money tax-free, making it an excellent addition to your retirement account. The financial advisors at Blankinship and Foster will evaluate whether the option of creating an HSA makes sense for you and provide advice on how to maximize all of your investments. Call to set up a consultation with one of our fee-only advisors today.
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