WRITTEN BY: Gideon Drucker, CFP® AIF® ECA
I've found in recent client meetings - there's widespread confusion about how High Deductible Health Plans and Health Savings Accounts work.
Today I want to share how to best to use the HSA’s benefits for maximum long term success.
Many high earning professionals are missing out on valuable tax benefits by not steering their HSA balances toward long-term investments!!
And even those who are using a "spend as they go" approach with their HSAs may want to reconsider their strategy to take full advantage of the tax breaks...
If you've forgone the HDHP/HSA combo in the past, use open-enrollment season for employee benefits to strongly reconsider!
Not sure WHY you should be considering this?
Here is a review of the HSA basics*...
Employees covered by HDHPs (High Deductible Health Plans) are allowed to contribute to an HSA (Health Savings Account).
Three tax breaks serve as an incentive to do so and make the HSA the most tax-friendly savings wrapper in the tax code. 🤯
Here is how the HSA is triple-tax advantaged:
➡️HSA contributions consist of pretax dollars (or they're deductible, for people who aren't using payroll deductions to fund their HSAs),
➡️any interest earned on the account is tax-free,
➡️and withdrawals for qualified healthcare expenses are also tax-free.
It’s also important to note that your company may also contribute to your HSA on your behalf if you choose a HDHP. Contribution limits for HSAs are as follows; In 2022, people with single coverage will be able to contribute as much as $3,650 to an HSA, and people with family coverage can steer $7,300 to their HSAs.
Probably the most important reason HSAs are such a valuable planning tool is that this money doesn’t have to be used in the current year!
In this way, HSAs are different from Flexible Spending Arrangements. While a use-it-or-lose-it policy (with a little wiggle room) applies to FSA balances, amounts in an HSA roll over from year to year; unused amounts in an HSA can build up and may be invested in long-term assets.
And this last point gets to how we can truly maximize an HSA towards for future financial success…letting our HSA account balances compound over time (and thereby also stretching out the tax benefits) for future use!
Want to talk about what an HSA would look like in your financial world?
As always you can schedule a 15 minute "Right Fit" call here so we can figure out together if there's more you can be doing now in your financial world.