Why an HSA May Be the Most Powerful Tax Tool in Your Plan

Health Savings Accounts are available if you are enrolled in a High Deductible Health Plan. If your health plan has a high annual deductible and meets certain requirements, you may be eligible to open and fund an HSA.

When used correctly, an HSA can be one of the most powerful tax tools available.

Why Use an HSA?

HSAs offer a rare combination of tax benefits:

• Contributions are deductible for federal income tax purposes.
• Distributions are tax-free when used for qualified medical expenses.
• Any growth inside the account can also be tax-free when used correctly.

In addition, many employers contribute to employee HSAs, which effectively adds free money to your savings.

An HSA is not just for current medical bills. It can also be a valuable tool for future expenses.

Five Rules You Need to Know

1. Contributions are deductible: HSA contributions are deductible for federal income taxes, and there is no income limit. State tax treatment may vary.
2. A High Deductible Health Plan is required: You must be covered by a qualifying plan. Your employer or insurance provider can confirm eligibility.
3. Annual contribution limits apply: Contribution limits depend on whether you have individual or family coverage and your age. Those age 55 and older can make additional catch-up contributions.
4. Tax-free distributions for qualified medical expenses: Contributions and earnings are not taxed when used for eligible medical expenses.
5. A powerful way to save for medical expenses in retirement: Medical costs tend to rise as we age, and an HSA can help cover those expenses efficiently.

Let’s Talk Strategy

An HSA offers flexibility that many people overlook.

You can pay medical expenses today using your regular cash flow and save your receipts. There is no deadline for reimbursing yourself.

Later in retirement, you can withdraw money from your HSA to reimburse yourself for prior qualified medical expenses, even years after they occurred, as long as you kept the documentation.

This allows your HSA to stay invested and potentially grow for future use.

What Do You Think?

Do you have a High Deductible Health Plan?

Are you maximizing your HSA contributions?

Could you pay current medical expenses from cash flow and save receipts for future use?

To share your thoughts, send me a direct email at Joe@BestFinLife.com.

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