Health Savings Accounts – Are You Missing Out on One of the Best Financial Tools? 

Have you heard of a Health Savings Account (HSA)? If not, you’re not alone—HSAs are one of the most overlooked financial tools that I encounter on a weekly basis. Despite this, they offer powerful benefits like tax-deductible contributions, tax-free withdrawals for qualified medical expenses, and even the option to invest the funds inside the account for long-term growth potential. In this post, we’ll break down who can use HSAs, how they work, and how they can fit into your overall financial strategy. 

Who Can Use an HSA? 

To qualify for an HSA, you need to meet certain requirements: 

  1. You must be enrolled in a high-deductible health plan (HDHP). By being in a HDHP, typically you save money on lower premiums every month, however, it’s important to note that your deductibles will be higher, and it’s also crucial to make sure you have quality medical coverage. 
  1. You cannot be covered by any other health plan that is not an HDHP (with a few exceptions, like dental or vision coverage). 
  1. You cannot be enrolled in Medicare or be claimed as a dependent on someone else’s tax return. 

If you meet these criteria, you’re eligible to set up an HSA. Many employers offer HSAs as part of their benefits package, but you can also open one on your own through financial institutions, even if you’re self-employed. 

How Do HSAs Work? 

HSAs are flexible and offer three significant tax advantages: 

  • Tax-Deductible Contributions: The money you contribute to an HSA is deductible on your taxes, lowering your taxable income. Not only do they lower income taxes, but also payroll (social security) taxes. 
  • Tax-Free Withdrawals: When used for qualified medical expenses (doctor’s visits, prescriptions, etc.), withdrawals from your HSA are tax-free.1 
  • Tax-Deferred Earnings: Many HSAs allow you to invest the money in your account once you’ve accumulated a certain balance, allowing your funds the opportunity grow over time. There is no immediate tax on earnings.1 

If you don’t use the funds, don’t worry. After age 65, you can withdraw HSA funds penalty-free for any purpose (though, non-medical withdrawals are taxed like traditional retirement accounts). 

Some people may even choose to pay for their medical expenses out-of-pocket and allow their HSA funds the opportunity to grow over time. This could make sense depending on someone’s specific situation. 

Unique Strategy: Reimburse Yourself Later 

One underutilized strategy with HSAs is saving receipts for medical expenses and reimbursing yourself in the future. There’s no deadline for when you need to reimburse yourself for qualified medical expenses, so you can let the account grow and withdraw the funds tax-free down the road when it’s more advantageous for you.  

How HSAs Fit into Your Financial Plan 

HSAs can be a powerful part of your overall financial plan. If you’re maxing out your retirement accounts and looking for additional tax-advantaged ways to save, an HSA should be on your radar. They provide a unique combination of tax benefits, flexibility in how you use the funds, and the potential for growth through investing3

Summary 

In short, HSAs are an incredibly versatile and tax-efficient tool. Whether you’re looking for a way to cover current medical expenses or planning ahead for retirement, an HSA can provide both immediate and long-term benefits. Don’t miss out on this often-overlooked financial gem—it could be a key player in helping to secure your financial future. 

1 Non-qualified withdrawals will be taxed as ordinary income and may also be subject to a 20% tax penalty. 

2 Tax treatment at the state level varies. 

3 Investing involves risk, including the possible loss of the money you’ve invested. 

This article is for general information only and is not intended to provide specific advice or recommendations for any individual. You should consult a financial professional to discuss your specific situation. 

CRN202710-7321275 

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