Maximize Your Health Savings Account

A Health Savings Account (HSA) is a great tool with triple tax benefits that can help you manage health expenses and even save for retirement. In order to reap the full benefits, however, you have to know the best ways to use these accounts.

HSAs are tax-advantaged accounts that allow you to save money that you can use to pay for qualified medical expenses. There are three tax benefits to these plans. First, all contributions up to the limit are 100 percent deductible. The limits for 2015 are $3,350 for individuals and $6,650 for families. It is possible for people over 55 to save an extra $1,000.

HSAs are tax-advantaged accounts that allow you to save money that you can use to pay for qualified medical expenses.The second benefit is that when the money is used for a qualified medical expense, (which includes vision and dental care), it is not taxed. If the funds are used for a non-qualifying expense, they are taxed. There is also a 20 percent penalty if the non-qualified withdrawal is before age 65.

The third benefit is that the interest and earnings of the account grow in a tax-deferred manner. This means that young people especially should look into these accounts because there is more time that the money can grow tax-deferred before they reach the age when big medical bills are more common.

If you want to benefit from an HSA, you need to have a qualified, high deductible health plan in order to use one. When choosing a health plan, there is typically a tradeoff between favorable monthly premiums or favorable deductibles – you can’t have both. People who don’t anticipate needing expensive medical services can therefore benefit from high deductible plans. If they do end up facing an unexpectedly high bill, they can use money from their HSA. In this manner, an HSA provides financial protection for people who couple them with a high deductible health plan.

Financially savvy people always search for new ways to maximize the tools at their disposal, so it is no shock that many people are using HSAs for more than just an emergency medical bill fund. An HSA can actually be viewed as a type of retirement savings fund. In fact, many people are currently treating HSAs similarly to a 401(k) and rolling over their balances. After age 65, the money can be withdrawn as retirement income for any purpose without a penalty and taxed at the person’s current tax rate.

“An HSA could be a worthy way to supplement your retirement, even if you’ve maxed out your other retirement plans,” states Jon Stein, CEO of Betterment on “Because you can max out your 401(k) and IRA and still save the full amount permitted in your HSA, it does raise the cap on tax-deferred savings.”

If you want to use these plans to their fullest extent, it’s important to realize that you don’t have to roll over the money to benefit.

“Some employees don’t establish accounts because they think it’s only for savings, and they don’t have the means to stash away money for the long term,” reports Ashlea Ebeling from Forbes. “But that’s a mistake because by cycling your healthcare spending through an account (making contributions and taking distributions to pay for medical expenses) in the same year, you are getting a discount on your medical bills equal to your federal income tax rate.”

If you want to really maximize your benefits, you also need to pay close attention to the calendar.

“Top off your contributions by tax day,” said Ebeling. “Even if you haven’t contributed to the max through salary deferrals for any given year, you can make a deposit (just write a check) to your health savings account for the balance and you have up until you file your taxes for that tax year to do so.”

You don’t have to get an HSA from your employer, so if you want to take advantage of this great tool and have a qualifying health plan, you should talk to your financial institution about setting one up.


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