HSA – Best Investment Ever

Health Savings Account (HSA)

HSA accounts are exciting as the tax wizardry can potentially save you a lot of money and put your retirement years related to healthcare costs in more secure footing. HSA account holders save pre-tax dollars and can withdraw money or use a HSA account debit card to pay for qualified medical expenses tax free.

For individuals and families that have a high deductible health insurance plan, you have the ability to save pre-tax money is a Health Savings account (HSA) account, essentially reducing your taxes. In addition to saving money and reducing taxes, you can invest those savings. Think of a HSA as a super retirement savings specifically for healthcare expenses.

The HSA is superior though in the fact that when you pay for medical expenses and withdraw the tax free savings, you are not taxed! (even prior to retirement age) The 401k and traditional IRA withdrawals in retirement are taxed as income. So, the HSA has a double tax reducing benefit.

Here is a graphic I put together to visually see the difference.

*Note HSA – is tax free upon withdrawal for medical expenses only. (see link below to IRS page)

https://www.irs.gov/publications/p969

For 2019, if you have self-only HDHP (High Deductible Health Plan) coverage, you can contribute up to $3,500. If you have family HDHP coverage, you can contribute up to $7,000.

In a simple example, if you make $100,000 , have a family and contribute $7,000 to your HSA, the IRS treats your earnings as if you only made ($100k – $7k) $93,000 and your overall taxes will be less. Couple this tax reduction with any of the pre-tax savings plans like 401K or traditional IRA and your tax burden is even less.

Of course every families needs differ and the HSA may not be the right choice for your circumstances. All Health Insurance options should be reviewed and individually assessed for the right choice.

Bonus: How to Maximize the HSA

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