Maximize Your Insurance Benefits: The Hidden Power of Health Savings Accounts (HSAs)

Open enrollment is here. For those of you with access to a high-deductible health insurance plan, take a closer look at the benefits of a Health Savings Account (HSA). Health savings accounts are one of our clientele’s most overlooked tax breaks. You must have a high-deductible health plan to qualify. If your healthcare needs are relatively low, a health savings account will allow you to bank and deduct $4,300 for yourself or $8,550 for your family. You don’t pay taxes on this income as long as the withdrawals are used for qualified medical expenses.

Health Savings Accounts (HSAs) offer a triple tax advantage: 

  • Pre-tax contributions: The money you contribute to your HSA is deducted from your taxable income, reducing your current tax burden.
  • Tax-free earnings: Any interest or investment gains within your HSA are not taxed.
  • Tax-free withdrawals for qualified medical expenses: When you withdraw money from your HSA to pay for eligible medical expenses, it’s not considered taxable income.

Additional Benefits: 

  • Portability: You own your HSA, even if you change jobs or retire.
  • Flexibility: You can use your HSA to pay for current medical expenses or save for future healthcare costs.
  • Potential for long-term savings: Unspent funds in your HSA can be rolled over year after year, allowing you to build a significant healthcare savings nest egg.
  • Lower insurance premiums: High-deductible health plans (HDHPs), which are required to open an HSA, often have lower monthly premiums than traditional health insurance plans.

Important Considerations: 

  • Qualified medical expenses: To avoid penalties, you must use HSA funds for eligible medical expenses, which include deductibles, copayments, and some over-the-counter medications.
  • Penalty for non-qualified withdrawals: If you withdraw money from your HSA for non-medical expenses before age 65, you’ll owe income tax on the amount withdrawn, plus a 20% penalty.
  • Contribution limits: There are annual contribution limits to HSAs, which vary by year.

Overall, HSAs can be a powerful tool for saving money on taxes and building a long-term healthcare savings fund.