- Published: 16 December 2016 16 December 2016
Key Benefits of Health Savings Accounts
If you have a “High Deductible Health Plan” (HDHP) and you don’t have a Health Savings Account (HSA) it is not too late to make a contribution and reduce your prior year tax bill at the same time. Contributions can be made up to April 15th following the due date. HSAs are tax-deductible savings plans that enable a person to save pre-tax dollars for future healthcare expenses. Unlike a Flexible Spending Account (FSA), HSA funds roll over year to year if you don't spend them. You can take the funds with you if you change jobs or leave the work force. Your HSA may also earn interest.
HSAs allow you to pay for qualified medical expenses like your deductibles and copayments with pretax dollars. Contribution limits are $3,350 for a single individual and $6,750 for a family, they also allow holders over 55 to contribute and additional $1,000 to their qualifying plan.
HSAs can provide a tax planning benefit if utilized properly.
Your funds grow tax-deferred and can roll over year after year, no “use or lose it” clause, and it is portable you can take it with you if you change jobs or when you retire. These characteristics of the HSA provide some of the often-overlooked benefits. The funds can be used to pay for health insurance premiums when you are in between jobs, to pay for qualified long-term care premiums, and Medicare parts A, B, D, and Medicare HMO premiums.
At age 65, you can take penalty-free distributions from the HSA for any reason. However, in order to be both tax-free and penalty-free the distribution must be for qualified medical expenses. Withdrawals made for other purposes are subject to ordinary income taxes. Most HSA holders over 65 continue to use their HSA funds for qualified medical expenses not covered under Medicare, ensuring they get the maximum benefit from their HSA.
If you’re looking for a tax deduction to help reduce your 2016 taxes why not invest in your future, instead of the traditional vehicle or other asset purchase that will have no value in five to seven years.
Leo Maher Accounting
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