5 Things to Know About Health Savings Accounts
By: Cameron Diehl, CFP®
Friends – I wanted to share a few notes this month on an increasingly popular savings / investment vehicle – health savings accounts or HSAs. While available since 2003, HSAs have grown exponentially in recent years following passage of the Affordable Care Act.
The following are a few points I think everyone should be aware of (though certainly not exhaustive). If you are currently, or will be, enrolled in an HSA, it is important that you consider how this versatile tool will fit into your overall financial plan.
- They’re extremely tax efficient – Contributions (up to $3,450 for individuals and $6,900 for families plus catch ups for anyone over 55) are triple tax advantaged – they are made pre-tax, can be invested and grow tax-deferred and are withdrawn tax free if used for medical expenses (Source: Optum).
- They’re not use it or lose it – Unused balances can be rolled forward year-to-year, providing helpful savings on medical expenses now or an additional retirement savings option for the future.
- You can invest within them – A common oversight when I speak with people about their HSAs is leaving large balances sitting in cash. Most plans provide an option to invest balances over a certain minimum, providing a significant opportunity for long-term, tax-deferred growth.
- They can provide retirement income – Because unused HSA balances roll forward indefinitely, thoughtfully investing within them can provide an extremely tax-efficient way to save for future income. If you’re fortunate not to have significant medical expenses even in retirement, they can be used to pay Medicare premiums or, once you reach 65, withdrawn for non-medical expenses and taxed at your normal rate.
- There’s no income limit on contributions – Many higher income earners are precluded from taking full advantage of certain retirement savings vehicles because of income caps (traditional and Roth IRAs particularly). HSAs have no such caps, providing another tax-advantaged way for higher earners to save.
As always, if you would like to discuss anything covered above, please don’t hesitate to call or email me. I’m always happy to help.
Disclosure: While we are familiar with the tax provisions of the issues presented herein, as financial advisors of Raymond James & Associates we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Information contained herein was received from sources believed to be reliable, but accuracy is not guaranteed. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision.
