Health Savings Accounts (HSAs) are an increasingly popular tax-favored benefit for employees and their families. Nearly anyone enrolled in a high deductible health plan that is HSA-qualified can set-up an HSA and benefit from the tax advantages.
If you’re considering opening an HSA or already have one, here are a few ways that you can maximize the benefit of an HSA.
Max Out Your Contributions
Maxing out your annual contributions to the account is one of the best ways to get the most of an HSA. It is important to stay within the annual contribution limit to avoid penalties. Some employers will allow you to make pre-tax contributions from your paycheck, therefore reducing your taxable income. If you make contributions on your own, you can deduct the amount from your federal, and possibly state income taxes.
Take Advantage of Employer Contributions
Many employers will contribute to an HSA or high deductible health plan (HDHP) premium. Much like a 401(k) match, it’s a good idea to take advantage of this benefit. After all, it’s essentially free money! It is important to keep in mind that your employer’s contributions count towards your HSA contribution limit.
Enjoy The Flexibility
HSA accounts are yours, so if you lose your job or find another one, your HSA account remains for you to use. Unlike flexible spending accounts (FSAs), funds in an HSA roll over from year to year, so you don't lose any money if you don't use it all in a given year. This flexibility empowers individuals to plan for future medical expenses, whether it's for anticipated healthcare needs, emergencies, or long-term care.
Stick To Qualified Medical Expenses
You won’t be taxed on withdrawls from your HSA for qualified medical expenses.
Interest that accrues in an HSA is also tax-sheltered. Take full advantage of the account’s tax benefits by using the funds exclusively for qualified medical expenses. It’s possible to use your HSA funds for other purposes, however when you do this, the IRS will require you to pay income tax on your withdrawl plus a 20 percent penalty. If you want to make the most of the account, focus your spending on qualified medical expenses.
HSAs provide tax advantages, flexibility, and serve as a safety net in times of need. By utilizing an HSA, individuals can better manage their healthcare expenses, reduce their tax burden, and ensure they are financially prepared for both expected and unexpected medical costs.
Contact Us if you have questions about how an HSA can be incorporated into your financial plan.