Many people enrolled in high deductible health plans can also enroll in Health Savings Accounts, (HSA's). Over 90% of employers offering high deductible health plans also offer HSA's. A health plan is considered high deductible in 2020 if it has a minimum annual deductible of $1,400 individual/$2,800 family, or an out-of-pocket maximum of $6,900 individual/$13,800 family. You can set up your own HSA if it isn't offered by your employer or if you are self employed as long as your health plan meets the requirement mentioned above.The new contribution limits for health savings accounts for 2020 are $3,550 for individuals and $7,100 for families. The catch-up contribution limit for those over age 55 will remain at $1,000.
HSA's offer a triple tax advantage. Pretax contributions, potential gains from investment, and withdrawals used for medical expenses are exempt from federal and most state taxes. Any unused balance is carried over to the next year, funds never expire and they can be passed on to a beneficiary after death. After the age of 65, the funds can be used for non-medical expenses.
HSA's are often confused with Flexible Savings Accounts, (FSA'S). Both allow you to set aside money for healthcare costs before taxes and are taken out of your paycheck. HSA's can build value over time through contributions and capital gains while FSA's require all or almost all contributions to be spent by year's end or that money is lost.
Contact Jellison CPA if you have questions about the benefits of opening an HSA account.
