Why are HSAs (Health Savings Accounts) so popular with financial advisors? They offer numerous benefits:
- Tax-deductible contributions for those with eligible high-deductible health plans.
- Tax-free investment growth and income.
- Tax-free withdrawals at any age to pay for qualified medical expenses.
- Tax Return Deduction even if you don’t itemize.
Add to these tax benefits the fact that earned interest is not taxable. Furthermore, any leftover contributions roll over into the next year and earn interest. You can withdraw from your HSA for reasons other than qualified medical penalty-free after you turn 65.
The primary drawbacks are that any non-medical expense withdrawals are considered taxable income and come with a 20% penalty. It’s important to keep receipts for HSA payments for qualified expenses in the event of an audit.
HSAs provide cash to cover higher deductibles than HSA-eligible health plans generally have. That same cash can be used and invested until you need it. Best of all, that cash and any interest belong to you and not your employer.
While employer contributions to your HSA there are not deductible, it’s likely that amount will grow over time if invested. If you’d like to see how an HSA Account fits into your tax strategy, and how you can combine it with other plans, we welcome you to take advantage of a free discovery session by visiting New Client Application or https://calendly.com/d/46r-49m-93k/10-minute-intro-call.