Greetings!,

Do you have a Health Savings Account (HSA)? If you do, you may realize it is one of the most tax-friendly savings and investment vehicles around today.

You may be wondering why I feel this way.

HSA accounts let you and/or your employer put money aside on a pre-tax basis that you can use for medical expenses, tax-free. There are no income limits that restrict your contributions like an Individual Retirement Account (IRA) might. The funds can grow, and be used tax-free, if certain medical expenses are met. You can even accumulate your expenses and withdraw all your funds at some point in the future under certain circumstances.

Yes, there are restrictions on who can have an HSA account. You do need to have a high-deductible health insurance plan (HDHP) in order to meet the requirements. These include, not being enrolled in Medicare and not covered by a non-HDHP. In addition, you can not be claimed as a dependent by someone. If you qualify, a married couple could save up to $8,750 (and an additional $1,000 if 55 or older).

Another advantage is that HSA plans allow you to use the funds for long-term care insurance premiums. This has the impact of making these premiums tax-free (at least the amount paid from an HSA account).

However, like most things financial, proper planning is needed. Qualifying medical expenses allow you to use the funds tax-free. However, taking out the funds for non-qualified expenses can cause you to incur a penalty. If you are under 65, you would pay taxes and a 20% penalty. After age-65, there would be taxes only and no penalty.

Care is also needed in respect to beneficiary planning. While a surviving spouse may receive the account and continue to use the medical expense option, non-spousal beneficiaries have to claim the amount received as income (but no penalty tax).

If you would like to know more about HSA accounts and how they may be another tool for you, please let us know.

As always, thanks for reading.



Bernie & Chad