Unlike flexible spending accounts , HSAs have no use-it-or-lose-it deadline. The account is portable and stays with an individual whether they change jobs or do not use the funds before the end of the calendar year. Funds carry over from year to year, making HSAs a great savings vehicle for increasingly high medical bills that may occur in future years. A bonus benefit is that after the age of 65, the account owner may take distributions from the HSA for any purpose, health-related or not; they will pay regular income tax, but with no penalty.
Investing is the HSA user's best course. If the rate of return is 7. Note: This bracket ended in Another big advantage is the savings on medical expenses. Note that HSA contributions are generally subject to state tax. The short answer: nearly everyone. They are not just for those with high salaries. Even if you're unable to contribute the maximum amount allowed, "there is value in putting anything away, and little savings add up," McClanahan says.
This is especially true for younger people, she notes, since getting into the habit of taking advantage of an HSA can be a good way to form good savings habits. Something to keep in mind, McClanahan says, is that high-deductible health plans, which you need to be eligible for an HSA, have changed a lot.
Even a person with significant health issues might find that a high-deductible plan, coupled with the ability to save tax-free in an HSA, is a better deal. Find a solid investment account for HSA funds. Many financial institutions offer HSAs, and the options have improved over the years. Self-employed individuals can further reduce taxable income by paying health insurance premiums out of pocket, saving HSA funds for the future.
People who earn less can still benefit from having an HSA, but they'll need to set a goal of stashing at least the amount of the deductible in the account. McClanahan recommends funding the account every year, and hopefully more. High-deductible plans have changed a lot in the past decade, McClanahan says, and it pays for someone to run the numbers before deciding that such a plan, with access to an HSA and more generous premium assistance from the American Rescue Plan , is not right for them.
The American Rescue Act increases premium tax credits for all income brackets for coverage years beginning in both and Most people across all household income levels will see lower premiums as a result of receiving more tax credits to reduce plan prices.
The factors to input into a calculator are the cost of premiums, compared with those of a lower-deductible plan with higher premiums; whether the employer is contributing anything to the HSA—that's free money—and the cost of any regular, expected healthcare costs, not including annual wellness visits and preventive care, which carry no cost in a high-deductible plan.
Estimating healthcare needs in the coming year is the top one. Companies negotiate different packages with insurers, McClanahan points out. Simply choosing the lower deductible leaves out a lot of information, such as a possible employer contribution to a Health Savings Account and the ability to save for health care expenses in the HSA.
In addition to your spouse, you can spend HSA dollars on your children or any other dependents you can claim on your federal tax return. You can pay for spousal and dependent expenses even if they are not covered on your health plan. Of course, a healthy person in any income bracket who expects to need little or no medical care during the year will always come out ahead by choosing the overall cheaper plan and banking the difference.
Just because you're not in a position to max out your k plan and IRA doesn't mean you should ignore the advantages of saving some of your money this way.
The accounts have changed over the years and now have excellent investment options. McClanahan recommends putting HSAs high on the list.
When people are on Medicare, which doesn't cover everything, they'll be able to use the money to cover hearing aids, dental needs, or vision tests. While these accounts have been available since , too few eligible Americans are taking advantage of them.
EBRI found that virtually no one contributes the maximum, and nearly everyone takes current distributions to pay for medical expenses. An HSA's triple tax advantage, which is similar to that of a traditional k plan or IRA, makes it a top-notch way to save for retirement. Your contributions to an HSA can be made via payroll deductions, as well as from your own funds. If the latter, they are tax-deductible , even if you don't itemize.
If they're made from your own funds, they're considered to be made on a pre-tax basis, meaning they reduce your federal and state income tax liability —and they're not subject to FICA taxes, either. Your account balance grows tax-free. Any interest, dividends, or capital gains you earn are nontaxable. Any contributions your employer makes to your HSA do not have to be counted as part of your taxable income. Withdrawals for qualified medical expenses are tax-free. Once you begin to withdraw funds from those plans, you pay income tax on that money, regardless of how the funds are being used.
The account can remain untouched as long as you like, although you are no longer allowed to contribute once you enroll in Medicare. You become eligible for Medicare at age What's more, the balance can be carried over from year to year; you are not legally obligated to "use it or lose it," as with a flexible spending account FSA.
An HSA can move with you to a new job, too. You own the account, not your employer, which means the account is fully portable and goes when and where you do. To qualify for an HSA, you must have a high-deductible health plan and no other health insurance. You must not yet qualify for Medicare, and you cannot be claimed as a dependent on someone else's tax return. A primary concern many consumers have about foregoing a preferred provider organization PPO , health maintenance organization HMO plan, or other health insurance in favor of a high-deductible health plan is that they will not be able to afford their medical expenses.
High expenses can be one reason these plans are more popular among affluent families who will benefit from the tax advantages and can afford the risk. With an HDHP, by contrast, you're spending more closely matches your actual healthcare needs. Of course, if you know your healthcare costs are likely to be high—a woman who is pregnant, for instance, or someone with a chronic medical condition—a health plan with a high deductible may not be the best choice for you.
But keep in mind that HDHPs completely cover some preventive care services before you meet your deductible. All in all, an HDHP might be more budget-friendly than you think—especially when you consider its advantages for retirement. As mentioned above, your HSA contributions are tax-deductible until you sign up for Medicare. The contribution limits are adjusted annually for inflation. The contribution limit for a family health savings account in You can contribute up to the maximum regardless of your income, and your entire contribution is tax-deductible.
You can even contribute in years when you have no income. You can also contribute if you're self-employed. This may sound counterintuitive, but we're looking at an HSA primarily as an investment tool. Granted, the basic idea behind an HSA is to give people with a high-deductible health plan a tax break to make their out-of-pocket medical expenses more manageable. But that triple tax advantage means that the best way to use an HSA is to treat it as an investment tool that will improve your financial picture in retirement.
And the best way to do that is to never spend your HSA contributions during your working years and pay cash out of pocket for your medical bills. In other words, think of your HSA contributions the same way you think of your contributions to any other retirement account: untouchable until you retire. If you absolutely must spend some of your contributions before retirement, be sure to spend them on qualified medical expenses.
These distributions are not taxable. The key to maximizing your unspent contributions, of course, is to invest them wisely. When deciding how to invest your HSA assets, make sure to consider your portfolio as a whole so your overall diversification strategy and risk profile are where you want them to be.
Your employer might make it easy for you to open an HSA with a particular administrator, but the choice of where to put your money is yours. Let's do some simple math to see how handsomely this HSA savings and investment strategy can pay off. What about a more conservative estimate? Try out an online HSA calculator to play with the numbers for your own situation. Here are some options for using your accumulated HSA contributions and investment returns in retirement.
Remember, distributions for qualified medical expenses are not taxable, so you want to use the money exclusively for those expenses if possible. There are no required minimum distributions , so you can keep the money invested until you need it. If you do need to use the distributions for another purpose, they will be taxable.
In this way, an HSA is effectively the same as a k or any other retirement account, with one key difference: There is no requirement to begin withdrawing the money at age By waiting as long as possible to spend your HSA assets, you maximize your potential investment returns and give yourself as much money as possible to work with. You obviously want to avoid selling investments at a loss to pay for medical expenses.
When you open your HSA, you will be asked to designate a beneficiary to whom any funds still in the account should go upon your death. Federal income tax bracket:. State income tax bracket:. Rate of return:. The amount of average yearly medical expenses is greater than average yearly contributions, so no savings will accumulate.
Important Notification By accessing you will be leaving the HSA Bank web site and entering a web site hosted by another party. Cancel Continue.
0コメント