A health savings account (HSA) may be the best tax benefitable tool you can use.
Maximizing an HSA for health care expenses:
Health Savings Accounts are triple-tax free, so if eligible to contribute, make the most of it.
Tax advantages include:
- Tax-free or tax-deductible contributions
- Tax-deferred earnings in the account, and
- Tax-free withdrawals for qualified health care expenses.
If HSA dollars are invested, the earnings inside the account may be significant. The best chance to benefit from long-term tax-deferred compounding is the result of paying for current healthcare expenses from funds outside of the HSA to the extent feasible. This approach can maximize all three tax-advantaged aspects of an HSA to help cover qualified healthcare expenses in retirement.
Want to know if you can deduct your HSA contributions? Click here to walk through our flowchart.
Of note: While HSAs are tax-advantaged accounts, there are tax penalties for withdrawals that are not qualified before the age of 65; therefore, it is important to have a separate emergency savings account. See IRS publications 502 and 969 for details on qualified withdrawals.
Want help to review your tax-benefitable options? We are here to help! Click here to schedule your free initial Zoom meeting.
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