How You Can Triple Your Tax Breaks
A Health Savings Account (HSA) offers 3 tax benefits, often referred to as “triple tax benefits.”
If you have a high deductible health plan and you are eligible, here is how the triple tax advantage works:
1. Pre-tax contributions.
Contributions to your HSA are on a pre-tax basis, meaning all the money you contribute is money you don’t have to pay taxes on.
For example, imagine your family decides to put $6,900 towards your HSA. In this hypothetical example, you would no longer have to pay income tax on that $6,900 contribution, as you normally would have. Hence, it is a “pre-tax” contribution!
With an HSA, your money can accumulate, tax-free. Put simply, any interest you earn over time won’t be taxed. You can see why that’s an incentive for many people to only use their HSA when they really need it, such as later in life.
When you think of other accounts that give you tax-advantages—such as a traditional 401(k) or an IRA—you end up paying taxes when you make withdrawals. In other words, “one day” in the future, you will have to pay taxes on those investments when it comes time to take money out.