For the past three years, I have gotten a notice from my healthcare provider that the policy I carry will no longer be available to me in the New Year. Each year I find myself with a more expensive policy that provides me with less coverage. But now, thanks to a savvy tip, I’ve figured out how to make my finances and healthcare work with each other. How, you ask? Three simple, sweet letters: H S A.
I am in a high-deductible health plan (HDHP). My HDHP policy requires me to pay a deductible of $2,800. As it turns out, as long as I have a minimum deductible of $1250 as a single person or a $2,500 minimum deductible for a family policy (which will be $1300 and $2600, respectively, for 2016), then I qualify for an HSA (Health Savings Account).
An HSA allows a person or a family with a HDHP (high deductible health plan) to put aside tax free money that can be used to pay deductibles and other qualified healthcare expenses and won’t poof away into nothing if it isn’t used! What a concept! That just seems too good to be true!
I have compiled a list of some important things to know regarding HSAs. These are the top nine reasons my HSA is my new best friend:
- My HSA is tax deductible off of my gross income, which is awesome, and could even lower my tax bracket.
- My HSA resembles my Roth IRA since my principle grows tax free BUT, in addition, I get the fantastic benefit of receiving a current tax deduction. (NOTE: HSAs have contribution limits. For 2015, an individual may contribute up to $3,350; for a family, that amount is $6,650. People over 55 may add another $1,000 per year as a catch-up contribution). I can even have my HSA account managed by investment professionals to maximize its growth potential.
- If I don’t use all of the $3,350.00 that I am allowed to put in my HSA yearly ($6,650.00 for family plans), I can make that money grow! I can choose to put it to work in an investment account and that money grows tax-deferred! Whoa!
- It is one of the most tax favored savings vehicles available to me as a US citizen. I’m going to say it again, HSAs are completely tax free — funded with pre-tax dollars when taken as a reduction of pay from my employers, and not subject to taxes at withdrawal if used for qualified medical expenses – elective rhinoplasty is not qualified. Dang! Even if I fund my HSA on my own (with after tax dollars), I would still qualify for a tax break on it.
- It’s a great way to save my pre-tax money for future medical costs. The HSA can be a good way to help cover long-term care costs by paying for LTC premiums and, at age 65, it can pay for Medicare premiums as well!
- I can let the unused money in my HSA roll over year after year – there is no “use it or lose it” like a Flex account.
- It is PORTABLE! It does not matter where I work or if I start an HSA qualified plan on my own, my HSA goes with me wherever I go.
And the kicker(s) …
- After I turn age 65, my distributions from my HSA account are no longer subject to a 20% penalty if I use them for non-qualified medical expenses. Meaning, if I take my money out for non-medical expenses I will only have to pay ordinary income tax – no penalty – which is similar to a traditional IRA.
- At my death, my spouse can assume my HSA as his own policy. (NOTE: Any other beneficiary must pay ordinary income tax on the value of the account, which is also comparable to a traditional IRA.)
Please do yourself a favor and start maxing out your HSA if you qualify for one. Give us a call immediately if you would like to learn about how you can utilize an HSA for financial planning and/or if you would like to know how to place your tax deferred HSA into an investment account to make it grow tax free! Winch Financial is here to help!
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