Many of you may know about the various benefits of an HSA (Health Savings Account), but very few know that it can be a tax shelter too.
An Health Savings Account is a medical savings account that is available to only the taxpayers of the United States of America. The people who are already enrolled in a high deductible plan can get the benefit if they’re saving money in a Health Savings Account. The fund that you save in an HSA is not subject to federal income tax. It is a federally governed savings account that reaps multiple benefits by saving money.
Why Health Savings Account is considered as a tax shelter?
Contributions to an HSA are tax deductible and can be used to pay for qualified expenses generating taxable income. Some crucial advantages of an HSA are as follows:
If you contribute to an HSA, you don't need to pay income taxes on the contribution.
The interest and earning in your HSA is tax free.
The HSA can be used as an IRA. You can borrow money tax free and use it in post-retirement days.
If you withdraw money for paying medical bills, it will be tax free.
You can use HSA fund to make investments. So, if you have enough money for medical needs, saving to an HSA is a wise decision.
If you contribute to an HSA, you can reduce your Adjusted Gross Income (AGI). A lower AGI may help to reduce student loan Income Based Repayment (IBR) or PAYE payment. This way, you can reduce the total repayment necessary under the Public Service Loan Forgiveness (PSLF) program.
The deductible that you need to pay on your health insurance is much higher. But, if you enter into an HSA, you can save your pre-tax money for individuals and families.
Your contributions to an HSA remain in the account until you use it. “Use it or lose it” rule will not be there for HSA as with the FSA.
Though it seems that high deductible is a financial burden on those who are already going through poor health conditions and the seniors, the HSA can prove to be beneficial for a particular class of people. The young ones, who are usually healthy, can fare better with a Health Savings Account as they need comparatively less medical attention than seniors.
Many companies are offering Health Savings Account to their employees. Some companies are also offering a health insurance package that includes a high deductible plan and an HSA where you can stack up your savings and utilize it for future medical purposes. The benefit you can get is lower premiums as compared to traditional health insurance plans.
Therefore, if you’re employed and your company offers you a Health Savings Account, make the most of it by contributing money into an HSA. You can use the tax-free funds during a financial emergency and in retirement days.