Take Advantage Of Your HSA

How To Take Advantage Of Your Health Savings Account

Are you feeling satisfied by signing up for an HSA plan? Indeed, you must be, for you are one step ahead of taking complete control of your life. Life is unprecedented, and you don’t know what future will unfold. So it’s always better to be well planned, especially when it comes to your health. However, read on to learn more about HSA and the benefits associated with it so that you can draw maximum advantages out of it.

The health savings account gets you the maximum tax exemption benefits. An HDHP, i.e., High-Deductible Health Plan, allows you to contribute $1350  per person or $2,700 for the whole family towards HSA. But how does it work, and what all factors you must bear in mind to be able to avail HSA benefits; let’s take a look.

The Advantages of HSAs

Availability

A lot of people consider HSA to be a businessman’s game. However, they don’t know that anyone who has the correct insurance plan can invest in an HSA. Also, neither your employer is liable to set up HSA for you nor invest in it. However, they do need to offer you an insurance policy that qualifies for HSA.  

Tax Deduction

HSA gives you some substantial tax deduction as contributions made towards HSA are deducted from your business income or gross pay. HSA may even categorize you into a low tax bracket. 

Tax-Free Growth

The funds generated through HSA are completely tax-exempted and not forfeited if you don’t use them. HSA accounts are a great asset in building reserves for your medical needs in the later age of life. You can keep adding up to your HSA contribution every year in January.

Tax-Free Withdrawals

HSA allows you to spend money on permitted medical expenses tax-free, including chiropractic, dental, deductibles, eye-care, acupuncture, cafeteria, or accommodation costs incurred during hospitalization. Go through the IRS publication 502 lists for more details regarding the same.

The Self-Direct Option

You could invest freely with your HSA account, even in real estate. You are not limited to the mutual fund’s option that your bank offers. 

Retirement

HSA also allows you to withdraw money and spend on non-medical expenses once you cross the age of 59 and then pay ordinary taxes on it just like a conventional IRA.

Easy Set-Up 

HSA can be either set up at a local bank or do it yourself online but do not call on insurance companies. You don’t need a lot of paperwork to set up HSA, sign the form and deposit the money. The bank, in turn, will give you a visa card to pay for your medical expenses. You could also choose not to withdraw the money. In this case, get an IRA custodian added with the bank. 

3 Topmost Ways To Increase Your Tax Benefit

You can leverage the HSA smartly to increase your tax benefits. You can choose to do any of these depending upon your circumstances.

Good

Keep aside the money you would have incurred yearly on bearing the medical expenses and contribute the same towards HSA; you can use it as needed, though. If you choose this plan, you will get three added advantages: tax-free withdrawals, deductible contribution, and you can maintain a small balance. You can even overestimate your yearly expense. If you end up contributing more but using less of it, then in that scenario, your balance will not be forfeited, unlike a flexible spending account where you lose what you don’t use. However, you don’t get additional tax benefits like tax-deferred investment earnings. 

 Better

You can consider contributing just enough to make up for your estimated medical expenses and then put in some more money. You should be aiming at covering at least one to two years of your cost. Also, only access your money when you are in dire need or in case of medical emergencies. This strategy will help you create a reasonable buffer over the period for unexpected substantial medical expenses. 

Best

You should try to contribute the maximum amount or as close as possible to your yearly estimated medical cost for a relatively more extended period. Doing this will allow you to draw a full triple tax benefit. The contribution limit for one person in the year 2019 was $3500 ($50 more than what it was in 2018), and family coverage was $7000, which was $100 more than 2018. This approach is like your retirement plan. Since HSA earnings are tax-exempted, you can invest a higher amount that starts in the early years of your career. You can maintain an HSA account till your retirement and ultimately switch to one single retirement account. 

If you can sustain this model for an extended period, the HSA will be reason enough to cover most of your expenses. Additionally, making the right choices like utilizing tax-exempted distributions rather than tax-deferred accounts will provide you more tax leverage. It will save you from significantly high medical insurance premiums. 

Some Common Mistakes that People Commit On HSA

HSA’s tax benefits are immense, provided your account is utilized appropriately.

You Can Avoid A Few Things

Make sure that you are not utilizing the HSA funds for the non-qualified expenses. Doing this before 65 years of age, you could be in a stressed situation. You have to bear ordinary taxes on the withdrawal and, additionally, a 20% fine, which is much worse than penalties for early withdrawals from the retirement accounts. Once you cross the 65 age, you have to pay ordinary tax on the number of withdrawals under un-qualified expenditures. The last alternative is tapping the account for non-medical payments.

Additional Tips 

If your contribution to HSA is going through payroll, subtractions are typically not subject to the payroll taxes. Doing this is the best way to participate, specifically if your salary income comes under the threshold for social insurance taxes. According to this, you can save significantly more than what you’d set up by deductions of the payroll. However, you can provide extra contributions to the HSA up to IRS limits yourself. With an IRA until your tax -filing time limit for HSA offerings in April 2019 for 2018.

The HSA fund should not be deemed your crisis fund because of taxes and probable retribution of authorized withdrawals. However, as you cannot make extra HSA contributions once enrolled in Medicare, you are allowed to utilize the funds to cover Medicare premiums, expenses from your pocket, and a part of long-term care policy premiums. Medicare supplemental policy premiums are not deemed qualified expenditures.

At present, if you are not in a position to save for the long term in HSA, don’t be anxious. Utilizing your account to coat your projected medical expenditures is okay, specifically if you have different financial targets such as saving for a down payment on a home or the kids’ education. Keeping in an HSA a little earlier will provide you with extra options for healthcare expenses.

Final Thoughts

Health Saving Accounts (HSA) allows you to save money for future medical care expenses and provides you with significant tax benefits like tax-exemptions and creating a reserve for your retirement. You can use this fund to meet non-medical expenses and an ordinary tax like a conventional IRA after a certain age. Also, it is relatively easier to set up HSA.