The Benefits of an HSA

Stop thinking about your HSA as just a way to pay your doctor or medical expenses. That’s really NOT the point of an HSA. The point of the HSA is to save on your insurance premiums and your taxes!

HSA’s Offer a Triple Tax Benefit

Every dollar you put into your HSA is a TAX-FREE dollar. Every dollar your HSA earns is a TAX-FREE dollar. Every dollar you pull out of your HSA for medical expenses is a TAX-FREE dollar.

You get a deduction for your contribution, the earnings are not taxed, and you can draw it out TAX-FREE. There is no other benefit like this in the tax code!!

And just because you have money in your HSA account to pay for doctor visits and prescriptions, that doesn’t mean that you should.  

You don’t get a tax deduction when you use your HSA – you get the tax deduction when you contribute to it.

If you and your family are normally healthy and rarely have medical expenses – THAT’S GREAT – ALL THE MORE REASON THAT YOU SHOULD BE MAXING OUT YOUR HSA CONTRIBUTIONS EVERY YEAR!

Did you know that you can stockpile your receipts and then reimburse yourself in a lumpsum amount years down the road? There’s no dollar limit or timeframe when reimbursing yourself. You can rack up $10k in out-of-pocket expenses over the next couple of years and reimburse yourself 10 years from now in one payment. Just make sure you keep the receipts.

Start thinking about your HSA as an investment tool.

You can use the money in your HSA account to invest in real estate, a business, land, or almost anything you want by setting it up as a self-directed HSA (more on that in another blog) And remember, the money you make from that investment is TAX-FREE!

You can also use your HSA to pay for your health insurance premiums when you retire, if you Cobra, if you’re drawing unemployment benefits and for long-term care premiums.

And, you can now purchase over the counter items using your HSA account thanks to the Cares Act. See IRS publication 502 for everything you can buy over the counter. https://www.irs.gov/pub/irs-pdf/p502.pdf  Although, you might be better off looking through the aisles at Wal-Mart and online at Amazon. Both of these companies are marking items that are HSA eligible.

The 2023 contribution limit for an individual is $3,850 and for a family it’s $7,750. If you or your spouse are 55 or older you can contribute an additional $1,000.

In 2024 the individual limit is $4,150 and for a family it’s $8,300. If you or your spouse are 55 or older you can add $1,000.

If both spouses are 55 or older you will want to have separate HSA accounts to maximize your benefits. You cannot contribute $2,000 more into a family account. You must have separate accounts for each of you to contribute the additional $1,000.

You can make your contributions up until you file your income tax return or April 15th. Filing an extension of your tax return does not give you an extension to make your HSA contributions.

This is just one strategy we use to build wealth. There’s not one Giant strategy to building wealth. It’s being intentional with your everyday decisions and layering them on top of other wealth building strategies.

To learn more tax tips and strategies, sign up for our bi-monthly workshop notifications at www.ppsaccounting.com/workshop