How Hsas Help Reduce Taxes And Plan For The Future
Posted on: 25 June 2020
If you are looking for a tax-deductible way to save for future medical expenses as well as retirement, then a health savings account, or HSA may be for you. HSAs have many advantages, but they're not for everyone. For one, you must qualify under some strict IRS rules. Here is more information about how an HSA can help you with taxes and retirement, and what you need to do to have one.
How Does an HSA Help With Taxes?
In addition to saving for health expenses, HSAs give you an extra way to save for retirement when you have maxed out your contributions elsewhere. Like other retirement plans, you receive a tax deduction for contributing to your account. The maximum contribution amount varies for each year and whether you have an individual or a family plan.
You can have an HSA either through your employer or on your own. If you get one through your employer, then your employer may take your contributions out on a pre-tax basis and match your contributions. If you are buying a plan on your own and making post-tax contributions, then you receive a tax break when you file your return.
What Are the Requirements for an HSA?
The main IRS requirement for an HSA is that you have a qualified high deductible health insurance plan, or HDHP. Not all high deductible plans qualify for an HSA. The plan must pay no health expenses until you reach the deductible. Certain Affordable Care Act provisions, such as cancer screenings, are exempt from this requirement.
You also must be over 18 and not be claimed on anyone else's tax return. While you can have your HSA account throughout your life, you cannot open one after age 65 or if you are on Medicare. You also cannot contribute to your HSA unless you have a qualified health plan. However, you can still make withdrawals.
What Are the Rules for Withdrawing from an HSA?
You can withdraw your money for most health-related expenses regardless of your age without penalty or taxes. This includes dental and vision expenses as well as some over-the-counter items. After age 65, you can withdraw without a penalty, but may have to pay taxes on the money you receive.
Overall, HSAs are ideal for putting aside extra money for the future while giving you a tax break. As long as you meet the IRS qualifications, you can continue to contribute and withdraw from your account without penalties. If you want to know more about how an HSA can help you save on taxes, contact a tax planning specialist for more information.
Share