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Financial Planning Perspectives: Benefits of Health Savings Account

By John Jespersen

Financial Planning Focus: Benefits of Health Savings Account

  • HSAs provide a triple tax advantage
  • HSAs are more flexible than Flexible Spending Accounts (FSAs)
  • HSAs are a great way to budget for out-of-pocket healthcare expenses

Health Savings Accounts (HSAs) are tax-advantaged savings and investment accounts available for those with high-deductible health care plans. Some of the main features and benefits are:

Triple Tax Advantage

HSA contributions are 1.) federal tax deductions in most states except for some like California, Alabama and New Jersey. There are also 2.) no federal taxes on investment earnings, and 3.) no taxes on withdrawals for qualified medical expenses.

As a comparison, 401(k) retirement plans offer only a double tax benefit — no taxes on contributions and no tax on investment earnings. Thus, HSAs are a unique and powerful financial planning tool for constructing a practical bucket-of-money for future health care expenses. For more tax related information consult with your tax advisor and/or review IRS Publication 969 – https://www.irs.gov/forms-pubs/about-publication-969.

HSAs Are More Flexible Than FSAs

While there are no special eligibility requirements for an FSA, surprisingly there are more HSA qualified medical expenses than allowed in most Flexible Spending Accounts (FSAs). Even Long-Term Care Insurance premium payments are considered to be qualified medical expenses. See IRS Publication 502 for a complete list – https://www.irs.gov/pub/irs-pdf/p502.pdf. And unlike FSAs, you don’t have to spend all of your annual contributions by year-end (or lose it) — your contributions may continue to grow through investment earnings. A HSA will also move with you if you change jobs.

Budgeting for Health Care Expenses

For 2019 the HSA maximum contribution limit set by the IRS is $3,500 for an individual and $7,000 for a family. It is a good idea to maintain HSA funds needed to pay for two to three years of potential out-of-pocket healthcare expenses.

HSAs may be used as an excellent way to self-insure medical expenses, or to supplement healthcare costs in retirement. Working with a Financial Planner is a great way to assist you in establishing your overall financial plan and financial goals; to ensure you maintain the quality of life you and your family desire and expect. Come visit us at Metcalf Partners to review whether an HSA is a right fit for your financial future.

Contact John at John.jespersen@metcalfpartners.com