Health Savings Accounts (“HSAs”) are a tax advantaged plan originally intended for people with high deductible health care plans. The idea is that qualifying taxpayers can deduct their annual contributions into these plans, then withdraw the money, tax free, to pay for health care costs. Since many taxpayers will not receive a tax deduction for medical expenses, using an HSA effectively allows pre-tax dollars to be used for medical expenses. This is a great tax saving strategy.
These accounts have become more popular in recent years as people have realized that their excess savings in these plans can be rolled over from year to year. Unlike flexible spending accounts, there is no “use it or lose it” provision. This means that account balances can be invested and provide tax-free growth inside the HSA over a long period of time. Therefore, those who can afford to regularly contribute to their HSAs and avoid using them for current medical expenses are able to realize substantial tax benefits later in life.
For most folks in retirement, there is no shortage of medical expenses, making this additional savings vehicle very valuable, even more so if medical expenses continue to rise as they age. Again, any withdrawals are required to be used for medical expenses (otherwise, they’re subject to income tax).
The maximum annual contributions for 2019 are $3,500 for single coverage and $7,000 for family coverage. Those 55 and older can contribute an additional $1,000 per year; however, no additional contributions are allowed after enrolling in Medicare.
To learn more about how an HSA plan can help you, please let us know or click here to read a helpful article provided by Charles Schwab Advisor Services.
Horizon Wealth Advisors is a Houston based fee-only wealth management firm. Horizon is a fiduciary advisor. We specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.