The Expanding World of HSA’s
With so much buzz around taxes, from trade wars to health care fees, it’s a prime time to get acquainted with Health Savings Accounts (HSA’s).
How It Works
HSA’s are convenient ways to set aside health care funds while shirking taxes. Once qualifying for an HSA, which is when an individual is enrolled in a government-defined, high-deductible health insurance plan, a determined amount is contributed to the account every year. However, you cannot exceed a maximum set by the IRS.
“You can contribute up to $3,500 to an HSA if you have single coverage or up to $7,000 for family coverage in 2019, which is slightly more than the 2018 limits. If you’re 55 or older anytime in 2019, you’ll continue to be able to contribute an extra $1,000,” as reported by the site Kiplinger.
From there you will receive a debit card or checks linked to your HSA balance, with the ability to apply the funds to deductibles, copays, coinsurance and other qualified medical expenses not covered by your plan. This is where an HSA is really cool. One downfall is that insurance premiums usually cannot be paid for with HSA funds. Yet the tax benefits involved in having an HSA, along with their investment potential, probably cancel out the latter.
Benefits of an HSA
“No other savings vehicle can top an HSA. Not a 401(k) plan. Not an IRA. Not even a Roth IRA. For starters, deposits to an HSA escape both income and payroll taxes. That can’t be said of the 401(k) deposit. It escapes the income tax, but not the payroll tax. That’s no small matter. Even without adding in the employer’s share, most Americans are paying more in payroll taxes than they are in income taxes,” according to John C. Goodman, a contributor at Forbes.
How does that tax thing work? It’s because your contributions to the HSA are made before taxes are taken out of the deposits. A definite win! You also don’t pay taxes on the accounts potential growth. And it gets better…
“Because income is taxed after you make HSA contributions, you will be taxed as though you make less money. Say, for example, you make $40,000 per year. If you put $3,000 in your HSA, you will be taxed as though you make $37,000, thus lowering your tax burden,” says Emily Starbuck Crone of Nerdwallet.
All these tax perks are only compounded by an HSA’s investment potential, with the opportunity to roll them into mutual funds, stocks and estates--untaxed as long as withdrawls are for legitimate medical expenses.
The stalwart characteristics of an HSA are probably why they are becoming more and more popular.
Growing Option for Money Growth
“Devenir estimates that HSA investment assets reached $10.2 billion at the end of December, up 23% year-over-year. The average total balance, including both the deposit and investment accounts, was $14,617. 19% of all HSA assets are in investments,” according to the website Flex. And Advisory Board reported health savings accounts have gotten a staggering 400% more popular over the last decade.
Beyond what this means for someone’s individual taxes, healthcare and overall financial betterment, the burgeoning HSA option piques policymakers actions--ultimately protecting consumers from rising costs.
The HSA world is worth exploring!