About the HSA
What is a Health Savings Account (HSA)?
An HSA is a savings account vehicle that can be used to pay for medical expenses with pre-tax dollars. The best part of an HSA is that it is the only retirement account that you get a tax deduction for your contribution, the earnings in the account grow tax free, and you can take out the money in the account tax free. It combines the benefits of a traditional IRA and Roth IRA which is why it is my favorite account. As long as the distributions from the account are used for qualifying medical expenses, the distribution is tax and penalty free. You can also invest funds in your HSA like you would in an IRA in stocks, bonds, mutual funds, etc.
How much can you contribute?
The current annual contribution limit for 2020 is $3,550 for individuals and $7,100 for married couples. The deadline to contribute is by April 15th for the deduction of the prior year. There are also no income limits when qualifying for the deduction on your tax return.
Who can open an HSA?
The main requirement to qualify for an HSA is that you must be enrolled in a high deductible health care plan. In 2020, the qualifying deductible amounts are $1,400 for individuals and $2,800 for a family. HSA's are best for people that are generally healthy and not expecting a very large amount of health care costs. Also, both business owners and W-2 wage earners may qualify. A great strategy is to enroll in a high deductible health care insurance plan in order to save on premium costs and take advantage of the HSA to get a tax write-off for your out-of-pocket medical expenses.
How to open an HSA?
You can open an HSA at most banks and credit unions. They will give you a debit card which you will use for your qualifying medical expenses. You can use the debit card to pay for prescriptions, doctor's office visits, dental costs, certain allergy medications, acupuncture, vaccines, physical therapy, contact lenses, eyeglasses, massage therapy, etc.
If you are currently stuck with not getting any write-off on your tax return for medical expenses, look into the HSA account to start paying for medical expenses with pre-tax dollars.
