You might have heard about the Health Savings Account (HSA) when analyzing the list of insurance options your employer has available. It’s a recent thing and shows a lot of promise in allowing people to save up for the health costs that are almost always associated with aging and retirement. There are many benefits of a Health Savings Account. In fact, more and more applicants are jumping on the bandwagon – and for very good reasons, as you shall see below.
In this article, we’ll go over the cover and benefits of HSA, and the ways in which you can use the account.
Benefits of a Health Savings Account
The Taxes on an HSA
Well, we might as well get to the most attractive thing about the Health Savings Account: the tax-exemption clauses that are attached to it. Although the amount of the contributions you can make to your account is limited, they are not taxed. This affords a wonderful opportunity to protect a portion of your assets, as well as utilize it as a hedge against inflation.
Money With no Carry-over Restrictions
There are insurance accounts that only allow you to keep the money inside for a limited amount of time before you lose it. The HSA is definitely not such an account; there are no carry-over fees at any time. You, basically, possess the money for tax-free medical expense usage for the term of your natural life.
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If you withdraw some of the capital before a certain, specified age – usually around 65 years old – then you’re responsible for federal tax on it if you don’t use it for medical expenses. After the specified age, you pay no taxes on it. We’ll go over the tax benefits in greater detail in the next section.
Getting Specific With the Tax Benefits
It’s especially beneficial to open an HSA as soon as possible because the accrued interest is tax-free. Obviously, then, the more you have on the account, the more money you make on it that escapes the vice grip of Uncle Sam’s fist. If you are employed, consult with your employer and inquire as to what IRA accounts they offer, and if they offer, specifically, the HSA. If they don’t, you can still get one if they offer an insurance policy that can be amended/combined with it.
Secondly, any contributions you make to the HSA are tax-deductible; many of them are also considered pre-tax so you get the full amount. As you’d expect, of course, the amount of the contribution is restricted – the exact numbers are in the relevant IRS manual for the HSA.
Lastly, anything you withdraw and use towards medical services is free from tax. There are a few requirements here as well; one, you must be of a certain age to fully take advantage of withdrawal benefits; two, your medical service or expense must be approved in the relevant IRS manual that covers health care.Do you have a health savings account? Here are a few reasons you might want an HSA.Click To Tweet
Stock Investments and Others
Although the name of the health savings accounts strongly implies what it’s meant for; it’s nonetheless your money and you can do with it as you please. Medical expenses tend to increase as we age, of course, so it’s reasonable to use it for your health. However, you can also use it to fund stock market investments and mutual funds if you so choose. As with any IRA or investment account, it’s best to allow it to grow and benefit from the untaxed interest – and then, perhaps, use it for investments when you retire.
Unlike the massive amounts of paperwork that often precedes such other accounts, your HSA is about as straightforward as can be. Once it’s certified, you get a MasterCard just for this purpose. And, you can use it like any other credit card except all the tax-deductible benefits are already applied. You can also be reimbursed for expenses by keeping all of your receipts.
What about you? Do you know the benefits of a Health Savings Account? Do you have an HSA?