Advantages of Health Savings Account (HSA)Submitted by Kaizen Financial Advisors, LLC on May 31st, 2019
What is a Health Savings Accounts (HSA)? An HSA account is an individual savings account established to provide for qualified out-of-pocket medical expenses. HSAs have a number of desirable attributes that make them attractive to those that qualify. They can offer: a pool of tax-exempt dollars for health care, a path to tax savings, even a possible source of retirement income after age 65. Let’s take a closer look.
About 26 million Americans now have HSAs. You must enroll in a high-deductible health plan (HDHP) to have one, a health insurance option that may not be ideal for everybody. In 2019, this deductible must be $1,350 or higher for individuals or $2,650 or higher for a family. In exchange for accepting the high deductible, you may pay relatively low premiums for the coverage.1,2
You fund an HSA with tax-free contributions. This year, an individual can direct as much as $3,500 into an HSA, while a family can contribute up to $7,000. (These contribution caps are $1,000 higher if you are 55 or older in 2019.) Some employers will even provide a matching contribution on your behalf.1,2
HSAs offer you three potential opportunities for tax savings. Your account contributions are tax free (that is, tax deductible), the earnings in your account grow tax free, and you can withdraw funds from your HSA, tax free, so long as they are used to pay for qualified health care expenses, such as deductibles, co-payments, and hospitalization costs. (HSA funds may not be used to pay health insurance premiums.)1,3
At age 65, you can even turn to your HSA for retirement income. Current federal tax law allow an HSA owner 65 and older to withdraw HSA funds for any purpose, penalty free. You can use an HSA to pay Medicare premiums (other than premiums for a Medicare supplemental policy, such as Medigap) or extended-care insurance premiums. No Required Minimum Distributions (RMDs) are ever required of HSA owners. Keep in mind, however, if you take a distribution that is not used for a qualified medical expense, the money may be taxable and a penalty could apply, depending on your age.3
Why is an HSA less attractive for some people? Well, the first thing to mention is the related high-deductible health plan. When you enroll in one of these plans, you agree to pay all (or nearly all) of the cost of medicines, hospital stays, and doctor and dentist visits out of your pocket until that high insurance deductible is reached.1
For some, saving the money could be a challenge. If you pay for your own health insurance, just meeting the monthly premiums can be a challenge. Also, if you are a senior (or a younger adult) with a chronic condition or illnesses, you may end up spending all of your annual HSA contribution and reducing your HSA balance to zero year after year. That works against one of the objectives of the HSA – the goal of accumulation, of growing a tax-advantaged health care fund over time.
Long term investment growth potential. If you fall into the category of people who are eligible and able to adequately fund an HSA, then you have the potential to tap the long-term growth opportunity available with the account structure. Most HSA plans have investment options once your balance exceeds an established threshold. These investment options, general mutual funds, may cover a number of asset classes and risk levels. The riskier options tend to only make sense when the anticipated investment timeframe is long. This generally coincides with the conscious decision to cover all near-term medical expenses out of pocket, and save the HSA funds to cover long-term future needs, such as one’s retirement years.
If you have an HSA option through your employer or want to set one up for your business, please reach out to your Kaizen Advisor. We’d be happy to work with you to make sure you are making the most of this savings vehicle.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Kaizen Financial Advisors, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.
1 - tinyurl.com/y9lbk7s7 [2/2/17]
2 - trustetc.com/resources/investor-awareness/contribution-limits [1/3/18]
3 - thebalance.com/hsa-vs-ira-you-might-be-surprised-2388481 [8/13/17]