Are You Optimizing all the Benefits Your HSA has to Offer?

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Are You Optimizing all the Benefits Your HSA has to Offer?

Blaine Bowers | Oct 12, 2022

Do You Have a Health Savings Account Available? Are You Maximizing Its Potential?

What is a Health Savings Account, and Who is Eligible?

A health savings account, or HSA, is a tax-advantaged savings account designed to help cover the costs of medical and healthcare expenses, including some healthy living expenses (depending on your plan and provider).

One caveat to using an HSA is that they are only available to those who have a high deductible health plan (HDHP). While HDHPs can equate to higher out-of-pocket costs for treatment, they typically have lower premiums which may make them ideal for healthier individuals.

Your provider should tell you if your plan is a qualifying HDHP, but in general the minimum deductible is $1,400 for an individual or $2,800 for a family, with maximum out-of-pocket expenses of $7,050 and $14,100 respectively. For 2023, those numbers jump to $1,500 and $3,000 minimum deductibles, with $7,500 and $15,000 maximum out-of-pocket expenses.

If you are unsure if you qualify for an HSA, ask your insurance provider.

Contributions

For 2022, the HSA contribution limit is $3,650 for individuals and $7,300 for families. Don’t worry if you feel like you’re behind in your contributions, you have until the tax deadline, April 15, to make your contributions for the previous year.

For 2023, the contribution limits jump to $3,850 and $7,750 respectively. Both 2022 and 2023 allow for an additional $1,000 contribution for individuals aged over 55. Virtually anyone can contribute to your HSA (you, your employer, or even friends and family), but contributions can’t exceed the total limit for the year without facing a pretty strict tax penalty.

Benefits

Just as with a traditional IRA or 401(k), contributions to an HSA are deducted from your taxable income, which means you’ll give Uncle Sam less of your hard-earned money. Actually, as long as the money withdrawn from your HSA is for qualified medical expenses, you’ll never pay taxes on that income!

The list of qualified medical expenses is long and extensive, and includes things such as over-the-counter medicines, rehab, dental and doctor visits, long-term care facilities, and a host of other items. For a full list of HSA qualified and unqualified medical expenses, check out the IRS Pub. 502 here.

Did I mention that HSA contributions are completely tax-free if used for qualified expenses and that you can invest the money in your HSA as well? The best part; as long as the money is used for qualified expenses, you don’t have to pay taxes on investment gains!

Yet even with these amazing tax benefits, a recent survey by Devenir states that less than 8% of all HSA’s in the US have any portion of their account invested. That means that over 92% of individuals with an HSA are missing out on tax-free compounding growth! Are you one of them?

Aside from the absolutely amazing tax benefits of an HSA, there are many other advantages of contributing to an HSA. If used properly, an HSA can be used to replace long-term care insurance, or at least be used to offset the costs associated with long-term care.

An HSA can be used to pay Medicare premiums once you retire, so you can keep more of your hard-earned retirement income. An article in Retirement Management Journal found that average annual healthcare costs for retirees was about $4,500 in 2019. Multiply that out by 30+ years of life expectancy after retirement, sprinkle on some annually compounding inflation, and you’ll be mighty glad you decided to invest in your HSA.

Get into a pinch and need some cash? You can reimburse yourself for any previous medical expenses (provided you save the receipts) and won’t face any penalties or tax consequences.

HSAs are individual and portable, so you don’t have to worry about losing your account when you leave your current employer, and you can move the account if you don’t like your current services. An HSA can also easily be inherited by a spouse in the unfortunate event of your demise, however, if you’re not married or are a widow(er), the assets in your HSA will be fully taxed before being passed to your beneficiary.

Conclusion

While HSAs are absolutely amazing, versatile investment vehicles that can provide a wide range of benefits, they are not available to everyone and may not be suitable for some.

For most individuals, an HSA will complement their current portfolio and provide valuable options for strategic tax-advantaged withdrawals during retirement.

Take a look at your financial plan to see if an HSA is right for you and see what steps you can take with your HSA to maximize your benefit and further strengthen your retirement plan.

Don’t have a financial plan or a retirement plan yet? It may be time to speak to a Certified Financial Planner to get your comprehensive financial plan in place to ensure you are on your desired path to your future. If you have questions about your current plan, your HSA, or are interested to see what a financial planner can do for you, reach out to Blaine Bowers of Bowers Private Wealth Management at (984) 308-1908 or email ClientServices@bowerspwm.com to schedule a free no-obligation introductory meeting.