Get the Most From Your HSA

Prefer to listen rather than read? Pair this post with Deliberate Money Moves Podcast: Get the Most From Your HSA.

Health Savings Accounts (HSAs) are available if you are in a High Deductible Health Plan. In other words, if you are in a health plan that qualifies as a cheaper plan with a high annual deductible, you can open an HSA along with it.

Contributions to HSAs are tax deductible and the distributions are tax free if they are for qualified medical purposes. This is one of the only ways you can have income that you never pay tax on.

But wait, there’s more – your employer may even contribute to your HSA alongside your contributions. That means more free money!

And we’re not done yet.

An HSA can be a great tool not only for medical expenses but also for other future expenses.

5 Rules You Need to Know

1. Contributions are always deductible – there is no income limit so no matter how much you make, you can always make a tax-deductible contribution to your HSA
2. High Deductible Health Plan (HDHP) is required – you must be covered by a qualifying plan and the easiest way to tell is to ask your employer or health insurance company
3. Annual contribution limits – these limits are likely lower than your retirement plan and depends on your age and health.
4. Tax-free distributions for qualified medical expenses – this means that both your contributions and the earnings are never taxed if used for eligible medical expenses
5. Saving for medical expenses in retirement – this is a great way to address rising medical expenses as you age

Let’s Talk Strategy

With an HSA, there is no time limit between the date of your medical expenses and when you must pull the funds from your account. So, if you can fund your medical expenses out of cash flow during your working years and keep all receipts, you can freely pull funds from your HSA in retirement, matching them up to prior year’s receipts.

In other words, you might take money out of your HSA at age 70 for a trip to Europe, justifying the medical expense requirement by using receipts you’ve accumulated over prior decades!

So, what do you think?

Do you have a High Deductible Health Plan? Are you maximizing contributions to your HSA? Are you able to fund current medical expenses from cash flow and save your receipts for use in future years for more flexibility of this tax free savings account?

To share your comments, send me a direct email at joe@bestfinlife.com.

Or if you’re ready to have a conversation about improving your financial life, schedule a complimentary virtual conversation here.