March 2021
Are you eligible to contribute to a Health Savings Account (HSA)? If you are, you should contribute as much as you are able.
Who is eligible to contribute? If you use a high-deductible health plan and you do not have Medicare, you qualify.
Why make the effort?
· There is a triple tax benefit. Your deposits into the HSA are tax deductible, any withdrawals are tax-free, and there is no tax on the income you make on the money while it is in the account.
· There are no income limits
· The list of medical expenses you can pay for out of your HSA is extensive. This includes some things you might not realize, like nursing home care and in-home nursing care, even if it is not performed by a nurse. Retirement community medical expense and even life-care or “founder’s fees” are eligible. It can pay for modifications to your home like handrails or grab bars. It can be used for transportation to/from medical appointments, including trips to other cities. And of course it can be used to pay for doctor visits, medicine, and hospital costs. You can find the complete list of included expenses at https://www.irs.gov/publications/p502#en_US_2020_publink1000178888
Once you have money in your HSA, you can use it for medical expenses as they come in, or you can invest the money and keep it growing tax-free. In the latter case, you can save it for future medical expenses down the road or keep a stack of medical receipts and reimburse yourself years or decades later. There is no time limit and the funds don’t expire.
Given the flexibility and the tax benefits, it’s a winning financial strategy.
