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9 October 2018

Tax Benefits of Health Savings Accounts (HSAs)

Tax Benefits of Health Savings Accounts (HSAs)

The IRS allows several ways to earmark pre-taxed money for certain expenses, thus reducing your end-of-year taxable income. Health savings accounts (HSAs) are among them. HSAs can be easy to set up and individually managed outside of employer healthcare plans.

You must be covered by a federally compliant high-deductible healthcare plan in order to be eligible for an HSA, and there is an annual contribution limit (family limit for 2018 is $6,900 and for 2019 it’s $7,000).

Once you meet those requirements, the benefits are many.

  • Unlike flexible spending arrangements (FSAs), HSAs have no spending (aka “use it or lose it”) deadline.
  • Employees have the power to open and contribute to them on their own and to keep the account with them after changing jobs.  
  • At the age of 55, an extra $1,000 per individual per year can be made as catch-up contributions.
  • Once you reach 65, HSA funds can be spent on non-medical expenses without penalty.
  • The IRS allows a one-time tax-free transfer from an IRA retirement account to an HSA account, but you must do it while you’re still eligible to make contributions (those on Medicare are not).  
  • HSA contributions are deductible on your tax return, even if you don’t itemize deductions. 
  • An HSA can be used to pay for a surprising variety of expenses like dental care, chiropractors, acupuncture, fertility treatments, addiction treatment, mental health, and over-the-counter medications.
  • Stores like H-E-B will automatically separate out HSA-eligible expenses from other purchases as you check out.
  • Some HSA accounts offer investment options, which means any money left in the account has the potential to grow tax-free. 

For more on these and other HSA tips, see these guides from the Society for Human Resource Management (SHRM) and the IRS, and feel free to contact us with questions.  

Image via CC0 Creative Commons

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