HSA as a tax savings strategy.

I’m sure you have heard of HSA as a tax savings strategy.

Now, let’s talk more about it, in case, you missed out on the key benefits of it.

Let’s start by saying that a Health Savings Account (HSA) is a tax-advantaged (pre-tax) savings account. Its purpose is to save for any current and/or future medical expenses. The HSA is also a great tax savings strategy.

The money in your HSA never expires, no matter what happens in your job or even when you retire. Comparing to flexible spending accounts (FSAs), any unused HSA funds roll over, without limits, each year.

How to use your HSA, so you benefit from it tax-wise?

You can use your HSA to pay for some or all of your qualified medical expenses each year and let the rest of the money in your HSA accumulate for future use,? including in retirement.

Since?HSA contributions are tax-deductible or pre-tax, if you withdraw?any?HSA funds and?don’t use them to pay for qualified medical expenses,?you?will have to?pay income tax and a penalty.?Don’t let these words scare you. The money you put in your HSA are pre-tax, so you never paid tax on it, to begin with. Unlike, your?pre-tax retirement accounts, HSA withdrawals (that are spent on qualify medical expenses) are?STILL?tax-free. HSA has?high deductibles, but their monthly premiums are lower than plans with lower deductibles.

HSA as a business expense??Normally (exceptions apply), contributions?to an HSA?made by an employer of an eligible employee are?not included in the?employee’s income?and?are not subject to federal income tax,?and FICA.?And yes,?employer contributions?to employee’s HSA?are?deductible as a business expense to the company.

Are there limits to your HSA contributions??The maximum?contribution amounts?(for?2020)?are $3,550 for?an individual?and $7,100 for?a family. If you are 55+ years of age, you can contribute an additional $1,000. The limit includes the total of what an individual and their employer contribute all together.

According to Taylor Tepper at Bankrate.com,?(https://www.bankrate.com/banking/savings/problem-with-health-savings-accounts/)? ?”HSA is?the most tax-preferred savings vehicle in American history“.?She also called them a?”wet kiss from Uncle Sam“?I found that pretty descriptive.?

What are the disadvantages of HSA??

Unfortunately, you pay more out of pocket costs than if you have health insurance plans that are not tied to your HSA.?

Also, you cannot rollover or transfer a HSA account balance to another person’s HSA. It is like you are transferring your paycheck to a different employee. So, this would not be allowed.

So, the worst-case scenario is if you?never use your HSA?and have to now?withdraw?money from it. What happens then? You’ll pay income tax and a penalty. Your income tax will be based on your tax bracket. The penalty is 20 percent. I would say, everyone needs to pay medical bills from time to time, especially as we get older. So, in reality, you can be saving up in your HSA simply as an addition to your retirement accounts.

As always, when you deal with the IRA and taxes, there is a?recordkeeping requirement.

Finally,?what is covered by an HSA? Such medical expenses as regular medical treatments, chiropractic or dental expenses, fertility expenses, wheelchairs, and of course prescription medications.?

Deadlines to contribute??You (or your employer) can contribute any time during the calendar year and up to April 15 of the following tax year.

Let’s see how HSA works:

Single Taxpayer (2020)

Income	IRA (taxed later)	HSA (not taxed if used for medical)	Tax Bracket	Tax Due
$49,000			22%	$10,780

	-$6,000	-$3,550	12%	$4,734

Income taxed later	$,6000		12%	$720

Potential TOTAL Savings				$5,326