Are there major tax benefits to a health savings account?
High-deductible health plans are our ‘new normal’ as employers shift health care costs onto employees. It’s important for consumers to understand the tax benefits of health savings accounts (HSAs), which can help you pay those deductibles. HSAs are beneficial because of their preferential treatment by the tax code. Contributions are tax-deductible, or if made through payroll deductions, they are pre-tax. Like a Roth IRA, an HSA grows tax-free, but it also gives you the benefit of tax deduction. HSAs offer a unique opportunity to save and pay for future medical expenses in retirement. Although HSAs are held by banks, credit unions, insurance companies or brokerage firms, it’s always your money. Any contributions made are yours to keep. Funds left in your HSA at year’s end roll over into the next year. Money left in your account at the end of your life can be willed to your heirs. You can make tax-free withdrawals easily for qualified medical expenses—dental, vision, diagnostic devices, prescriptions, acupuncture and even long-term care premiums. There are special rules for those 65 or older who are still working and have not yet enrolled in Medicare, so it’s important to get guidance to avoid tax penalties. If you’re healthy and have minimal health care expenses, don’t pass up the opportunity to benefit from the tax advantages of establishing an HSA!
William Alverson, CPA
If you haven’t heard of an HSA, get familiar! It combines a savings account with a highdeductible health insurance plan. Benefits include taxdeductible deposits, taxdeferred growth, lower health insurance costs and more control over health care spending. If you have a highdeductible health plan with a minimum deductible of $1,300 for an individual or $2,600 for a family, you can open an HSA at your financial institution and reduce your taxable income by the amount of your HSA contributions—up to $3,400 for an individual or $6,750 for a family. These are the maximum contributions for 2017, but they’re still relevant. Contributions for this year can be made until April 15, 2018. If you are 55 or older, you can add $1,000 to the contribution limits. You can use the HSA to meet your annual medical deductible. It rolls over year after year so there is no ‘use it or lose it’ component like a flexible spending account, and your HSA is portable and goes with you wherever you work. An HSA is one of the most beneficial but underused options to defer taxable income.