It’s not often that the IRS provides a tax-free option for your money—so when it happens, it’s a good advantage to take.
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—and 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’re able to save some or all of that money, there’s a bigger benefit to be had.
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’s face it, often times if you don’t 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)
In preparation for long-term investments and returns, it’s 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.
As for what you’re spending in the short term: take your reimbursements from the HSA account after it’s 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.
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.
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’d 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.
(It’s important to remember that the 6% return number is hypothetical, but the tax requirement is definite.)
As financial professionals, we believe there are many opportunities and strategies to help you attain your long-term goals and we’re here to help. Investing is complicated, so why not enlist professional guidance? Contact us today at (540) 720-5656.
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Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. Megan is also a fully licensed Life, Health, and Annuity agent. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.
Amy Anderson joined the ILG Financial team in 2023 as the client relations coordinator. Her responsibilities include scheduling of appointments, annual check-up notifications, and annuity and required minimum distribution assistance. She is a graduate of Harding University with a degree in Computer Information Systems. Amy and her husband have two children and she enjoys reading, crocheting, music and spending time with her family.
Terri Center joined the ILG Financial team in 2019 as client services manager. She handles client records, application processing, and gathering information to provide a professional and friendly experience with all of our clients. Terri is a graduate of Oakland University. She is married and has two children. She enjoys hiking, family time, and puzzle challenging video games. She also likes to share her creativity in her canvas paintings and sewing projects.
Jessica Carson joined the ILG Financial team in 2018 as an agent. Jessica and her husband have four children, two dogs, 3 barn cats, 5 chickens, and three parakeets. She indeed loves her children and pets! When not at work, Jessica enjoys playing the piano and cello as well as traveling and spending time outside with her family, hiking, fishing, and boating.
Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter.