HEALTH SAVINGS ACCOUNTS CAN LEAD TO FINANCIAL FREEDOM
USING HEALTH SAVINGS ACCOUNTS TO ACHIEVE FINANCIAL FREEDOM
TYPICAL RETIREMENT ACCOUNTS
- 401K-Plan
- Traditional Individual Retirement Account {IRA}
- ROTH Individual Retirement Account {ROTH-IRA}
- Health Savings Account {HAS
HEALTH SAVINGS ACCOUNT
For years my wife told me to learn more about Health Savings Accounts. Like many a husband, I ignored her. And I regretfully must admit she was right. NEVER tell her I said so!
HSAs can be outstanding investment accounts if you are eligible to contribute to one.
ELIGIBILITY
- Must be 18 years of age or older.
- Must be covered under a qualified high-deductible health plan (HDHP) on the first day of a specific month.
- May not be covered under any health plan that is not a qualified HDHP.
HEALTH SAVINGS ACCOUNT ADVANTAGES
- You contribute to a HAS with pre-tax dollars and NEVER pay taxes for money withdrawn for qualifying medical expenses. You reduce your taxable income each year based on the dollars of contributions you made. For each $1,000 contributed to an HSA, you save up to $220 on your taxes, assuming you’re in the 22% tax bracket.
- In a 401-K, you ALWAYS pay taxes when you withdraw money
- HSA accounts allow you to invest the contributed funds, although your account may need to have a certain amount of money in it to do so
- HSAs can provide tax savings upon contributing to your account AND when making withdrawals. You must spend the money on healthcare to get this double tax benefit. As I sit at the Mayo Clinic this week, I assure as you age, you will spend buckets of money on your health care.
- As your investments increase in value, you owe zero taxes and are allowed to hold your funds indefinitely. Your withdrawals are penalty-free after age 65. However, if you use the money for non-medical/health purposes, you will pay ordinary income taxes on the distribution as you would withdrawing from your 401K or Traditional IRA.
- HSA accounts allow you to invest the contributed funds, although your account may need to have a certain amount of money in it to do so
HSA LIMITATIONS AND REQUIREMENTS
Limitations and requirements are adjusted for inflation each year:
- The amount you can contribute to an HSA for the year,
- The minimum deductible for your health insurance plan,
- Annual out-of-pocket expenses.
WARNING: If you are non-compliant with the restrictions below for any particular year, you LOSE the HSA tax savings for that year unless you are a member of Congress, where laws for mere mortals do NOT apply.
CONTRIBUTION LIMITS
You can contribute to an HSA for 2022 until your 2022 federal income tax return is due – on April 18, 2023. The table below shows how the contribution limits have increased over the past few years (and for 2023 HSAs
HEALTH PLAN MINIMUM DEDUCTIBLES:
To contribute to an HSA, you must be covered under a high deductible health plan. For 2022, the health plan must have a deductible of at least $1,400 for self-only coverage or $2,800 for family coverage.
The following table shows the minimum deductible amounts for the six most recent years (plus for 2023)
OUT-OF-POCKET EXPENSES LIMITS
The health plan must also have a limit on out-of-pocket medical expenses that you’re required to pay. Out-of-pocket costs include deductibles, copayments, and other amounts but don’t include premiums.
As the table below indicates, the health plan out-of-pocket expense limits for HSAs have increased yearly from 2017 to 2023 to account for inflation.
OPENING AN HAS
If your employer offers an HSA, it typically works like a traditional 401(k): Your contribution is taken out of your paycheck on a pre-tax basis. Your employer may also kick in a contribution.
You can also open a HAS through your brokerage firm {Fidelity, Charles Schwab, etc.} or banks. You get the same tax break; just claim the contribution as an “above the line” deduction on your tax return, and the amount of your contribution will reduce your taxable income.
Almost anyone can contribute to your HSA: spouses, parents, even friends. Happy to accept donations.
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ABOUT ME
I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger with an N.C. State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I left a corporate career because I desired to make a difference as a speaker and writer. I was blessed to be coached and mentored by strong women and men in my family and professional life. It is my time to serve and give back.
DISCLAIMER
I started my first business at ~13 years of age (a small but brilliantly created plant nursery). I am a successful investor in stocks, options, real estate and am happy to share my finance and investment lessons. I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog as recommendations for your situation. As an investor, you must establish your risk/loss tolerance. Investment in any asset involves risk, including complete loss.
Please seek your licensed CPA or fiduciary financial advisors for individual financial advice.
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