We all have medical expenses. It could be as basic as bandages or as complex as corrective eye surgery. Many Americans pay out-of-pocket or through insurance. These costs can be reduced. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 established the Health Savings Account (HSA).
These accounts were created to help consumers with high deductible health plans save future medical expenditures. However, HSAs are now used to save for future medical bills and retirement savings.
If your company sponsors an HSA, your contributions are pre-tax. Non-payroll deposits are tax-deductible. The limit for singles is $3,650, and for families, it is $7,300. Each of those restrictions rises by $1,000 for persons over 55. These restrictions include employer contributions.
They will accrue interest if left in the HSA to be used for eligible medical costs. Because interest rates are so low, any earnings will be nominal. It is best to invest the funds in an HSA and then sell them if you need to pay a medical cost. If you have upcoming medical bills and require funds, simply submit the receipt to your HSA provider, and they will pay you.
The second tax benefit is that all HSA growth is tax-free. For example, if you invest in a 500 index fund, the increase is tax-free. Some HSA accounts require you to keep a specific amount aside from your investments.
The third tax layer is that HSA funds can be withdrawn tax-free for eligible medical costs. If you don’t want to use the money for healthcare, you can withdraw it for any reason after age 65. There are no penalties, but the money is taxed like a typical IRA. Ideally, individuals will keep putting money into an HSA, just like any other retirement account, and will be able to withdraw it at age 65 without penalty.
Visit our blog section to learn more about the health-saving account purchase.