Many people do not fully understand how an HSA can reduce future tax bills and many more do not think of it as an investment tool. In this video I explain the tax-saving benefits and investment opportunities you should consider leveraging within your Health Savings Account.
This is a great benefit, and we encourage people who have access to this to consider an HSA as part of their overall financial plan. This may sound counter-intuitive to how you have traditionally thought of your Health Savings Account. Instead, you might want to think about your HSA as an investment tool to help you achieve your long-term saving goals. Once invested, your HSA money will continue to grow.
If you can cover your out-of-pocket medical costs with cash, rather than taking from your HSA, your account will increase in value, leaving you with more money for health care costs during retirement. You must have a high-deductible health care plan in order to enroll in a Health Savings Account.
A high deductible medical plan HDHP means lower premiums and a higher deductible as well as higher out-of-pocket costs. In some cases, your employer may contribute money to your HSA, if you choose the high deductible plan. The more you contribute, the more benefits you receive, so this is the way to get the most out of your HSA. The out-of-pocket max is the most you can spend from your own pocket on expenses that go through your medical insurance in a plan year.
This contribution level would cover deductible and post-deductible expenses. The max can be different based on your health plan, so confirm your number to make this your strategy. Note: Your medical out-of-pocket max may not apply to common HSA expenses like dental, vision, and over-the-counter medications. It's best not to think of your HSA as an investment vehicle if you know you'll deplete the balance each year.
Some financial planners advise maxing out your HSA before contributing to an IRA because the tax benefits are so good. You get a tax deduction when you contribute funds, and you can rollover your funds from one year to the next.
You get just one or the other with an IRA. You get tax advantages when you contribute or when you withdraw, but not both. You get the tax benefits on both sides with an HSA. Like other retirement accounts, these limits can adjust from year to year based on inflation rates. You can redirect contributions to an IRA, a k , or another retirement account when you reach the maximum. Your HSA funds must be used for qualified medical expenses. But you can use your HSA funds for things other than medical expenses after you reach age You'll pay only ordinary income tax on those withdrawals.
Do some investigating before using your HSA as an investment vehicle. Many companies will allow you to invest the funds into something more aggressive than a traditional savings account. The HSA becomes a vehicle for wealth building if your account comes with investment options. Your HSA is your account to take with you if you leave your current employer, just like a k.
Collect all the information about it from your human resources department. Your medical expenses will become a larger part of your monthly budget as you age. Having this much money set aside for expenses that could also include long-term care later in life frees up your other retirement funds for more discretionary spending. This is a valuable tool in your retirement savings arsenal. HSA funds don't expire. The funds can be used at any time, as long as they're used for a qualified medical expense.
The process of opening an HSA is similar to opening a retirement account. Your employer may help you open an account, your current bank may offer HSA accounts, or you can search for financial institutions that will provide an HSA account. The rules for what you can spend HSA funds on are generally the same as determining what qualifies for claiming medical expense deductions. These expenses include medical services from physicians and surgeons, transportation to medical appointments, and the costs of medicine and medical equipment.
Internal Revenue Service. Accessed Oct.
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