Health Savings Accounts are the most tax-advantaged type of investing account, and I explain the HSA’s benefits and attributes. Use the HSA for qualified medical expenses and investing for retirement!
-Health Savings Account’s Triple Tax Advantages
-HSA Contribution Limits & Conditions
-Qualified Medical Expenses
-Saving Up For Medical Expenses In Retirement
-Choosing A HSA Provider
-How To Use The HSA
-Last Month Rule And Testing Period
-Deadline To Contribute
-HSA Investment Options
-Reducing Your Tax Burden On HSA Contributions
-HSA Summary: Everything You Need To Know!
A Health Savings Account (HSA) is not only a savings account, but is a full-fledged investment account that is triple tax-advantaged! You can use the HSA for not only qualified medical expenses, but also after age 65, for anything you want — just pay income tax!
This is why some have called the HSA the “Swiss Army Knife” of tax-advantaged accounts, because it offers tax-free: 1) contributions, 2) investment gains, and 3) qualified medical expense withdrawals!
The HSA annual contribution limits in 2022 are: Individual $3,650 or Family $7,300. And if you’re age 55+: you can contribute an additional $1,000.
In order to get an HSA, you would need to have a High Deductible Health Plan (HDHP) with minimum deductible amounts of Individual: $1,400 or Family: $2,800. If you are not sure if you have a HDHP insurance coverage, you can ask your employer or the health insurance provider if it qualifies for the HSA. In addition, the HDHP Annual Out of Pocket Maximum Limits are Individual: $7,050 or Family: $14,100.
You get to keep the HSA’s funds, unlike a Flexible Spending Account (FSA) which limits how much money you can roll over every year. But there are other benefits with FSA that you can learn about in my original video comparing HSA with FSA and Health Reimbursement Accounts (HRA).
If you were eligible with a HDHP on or before December 1 of a given tax year, you could contribute the full year’s worth of HSA contributions as long as you keep the HDHP for the entirety of the following year in what is called the testing period.
So if you had the HDHP by 12/1/2021, you would need to keep it through 12/31/2022 in order to avoid any penalties with contributing the full $3,600 for 2021. And then you could also contribute the full $3,650 in 2022 for all the months you remained eligible in 2022.
You have until April 15 of the following tax year to contribute for the previous year. So if you were eligible with an HDHP in 2021 (by or before December 1), you could still contribute the full 2021 year’s worth by 4/15/2022. This is a similar deadline to when you’re contributing to a Roth IRA or Traditional IRA.
If you choose your own HSA, you may have the full range of investment options available to you such as stocks, index/mutual funds, ETFs, CDs, bonds, and more. Some employer-sponsored plans may only offer certain mutual or index funds so you should look into what is right for your needs.
If you contribute to your own HSA outside of an employer payroll setup, you may be paying a little bit more in payroll taxes because you’re contributing after-tax dollars at first to the HSA. But then you get the income tax deduction later.
So in order to reduce the tax burden, going with an employer-sponsored HSA may help to prevent paying payroll tax since the employer can take out the money entirely pre-tax (tax-free) to contribute to the HSA. But check with a tax professional to be sure on how this works.
I include a summary on everything you need to know about the HSA, including how there may be 10% additional tax on the non-eligible contributions or how there’s a 20% penalty if the HSA funds are used for anything but qualified medical expenses before age 65. Also note, if you enroll in Medicare by age 65, you would not be able to contribute to the HSA anymore.
If you’re interested in learning how to take control of your finances and start becoming an investor like Warren Buffett, check out my free PDF guide.
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