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It\u2019s not often that the IRS provides a tax-free option for your money\u2014so when it happens, it\u2019s a good advantage to take.<\/p>\nIt\u2019s not often that the IRS provides a tax-free option for your money\u2014so when it happens, it\u2019s a good advantage to take.<\/p>\n
A Health Savings Account (HSA) is the one program that offers you three different tax benefits. Most people think of their HSA simply as a savings tool to pay medical bills\u2014and as we age, our health deteriorates, so we’ll have bills to pay at some point. While an HSA is designed to pay for medical expenses, if you\u2019re able to save some or all of that money, there\u2019s a bigger benefit to be had.<\/p>\n
In fact, there are three benefits! First, the money you put into the account goes in as pre-tax dollars direct from your employer. And let\u2019s face it, often times if you don\u2019t see the money, you rarely miss it! Second, consider the funds in your HSA like a brokerage account that gets invested, grows and, ironically, grows tax-free. Third, when used for qualified medical expenses, the distributions you take out are also provided tax-free. Voila! The triple tax benefit! (Once you reach age 65, the money can be used for nonmedical reasons without taxes or penalties)<\/em><\/p>\n In preparation for long-term investments and returns, it\u2019s recommended that you put money into the HSA today and let it grow. This means using alternative income streams to pay for current or short-term medical costs whenever possible. While it may be tempting to use your HSA money, healthcare costs are rising, so anything you can do now to prepare for those costs later can make a significant impact.<\/p>\n As for what you\u2019re spending in the short term: take your reimbursements from the HSA account after it\u2019s had time to grow. You can contribute money into the account, let it grow for decades and then take a lump-sum distribution in the future that would put money in your pocket tax-free. Make sure to keep the receipts for what you paid out of pocket for medical expenses.<\/p>\n Another benefit that has your HSA working for you is a Qualified HSA Funding Distribution made possible by the Health Opportunity Patient Empowerment Act in 2006. It provides an option to roll over the maximum of your annual contribution limit from a traditional or Roth IRA into your HSA account. However, this option is only available once in your lifetime, so use it wisely.<\/p>\n For example: Let’s say that you roll over your maximum when you turn 55, and your HSA returns 6% over ten years (until age 65). You\u2019d then have the total amount of that growth to spend on medical expenses, tax-free. But if you left the money in your IRA and got the same return, you’d have to pay taxes on the money you withdraw.<\/p>\n (It\u2019s important to remember that the 6% return number is hypothetical, but the tax requirement is definite.)<\/em><\/p>\n As financial professionals, we believe there are many opportunities and strategies to help you attain your long-term goals and we\u2019re here to help. Investing is complicated, so why not enlist professional guidance? Contact us today at (540) 720-5656<\/a>.<\/p>\n
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