A Health Savings Account (HSA) is a tax-advantaged account designed to help you save and pay for medical expenses. Pure’s Associate Advisor, Kyle Farmer, CFP®, AIF®, explains the key benefits of an HSA and how it can support your long-term health care needs and potentially improve your overall retirement strategy.
Transcript
What if I told you there is a way to save your hard-earned cash into a triple-tax-advantaged plan? Health Savings Account (HSA) plans are just that. Contributions are tax deductible, growth is tax-free, and withdrawals are tax-free. That’s pretty darn good.
To be eligible for a Health Savings Account you must be enrolled in a high-deductible health plan, or a health plan in which your annual deductible is at least $1,650 as an individual, or $3,300 if you have family coverage. You can contribute up to $4,300 per year as an individual, or $8,550 as a family, and the contributions are tax deductible in the year in which you make the contribution.
The triple-tax-advantage comes with a cavate, you need to use the funds towards qualified medical expenses. These plans are also fully portable, so they remain with you even if you switch jobs, and there is no “use it or lost it” rule like with Flexible Spending Accounts, or FSAs. You got to use it or lose it. While the dollars remain invested, any earnings, dividends or interest grow tax-free. Distributions for qualified medical expenses are also tax-free, which include common doctor’s visits, dental cleanings, eye exams, X-rays, lab fees and so on.
Once you are age 65 or older you can also use your HSA for nonqualified medical expenses, These distributions will be subject to income tax but will not be subject to penalties. The IRS treats this income just as you would treat income from a traditional IRA or 401(k). I’ve had the question asked before – “Well, can I buy a boat with my HSA in retirement?” The answer is yes, you can, but the distribution would be treated just as a normal distribution like an IRA or 401(k). However, if you are under age 65, you do pay a 20% penalty on nonmedical withdrawals in addition to ordinary income tax.
Bottomline, if you qualify be sure to take advantage of an HSA. You’re investing not only in your health but also your future. If you’d like to see how an HSA could play a part in your overall financial plan, please reach out to Pure Financial Advisors for a free assessment.
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• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC, a Registered Investment Advisor.
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CFP® – The CERTIFIED FINANCIAL PLANNER® certification is by the CFP Board of Standards, Inc. To attain the right to use the CFP® mark, an individual must satisfactorily fulfill education, experience and ethics requirements as well as pass a comprehensive exam. 30 hours of continuing education is required every 2 years to maintain the certification.
AIF® – Accredited Investment Fiduciary designation is administered by the Center for Fiduciary Studies fi360. To receive the AIF Designation, an individual must meet prerequisite criteria, complete a training program, and pass a comprehensive examination. Six hours of continuing education is required annually to maintain the designation.
