The Only Triple Tax-Sheltered Program Available – HSA

HSA

This is the very best tax shelter there is, if you qualify. A HSA, Health Savings Account is the only triple tax-advantaged program in the whole IRS tax world. You are able to put in pretax contributions, you are able to enjoy tax-free compounding, as long as the money stays inside of the HSA. Then you are able to enjoy tax-free withdrawals for qualified healthcare expenses. It doesn’t get any better than that.

So how do you get one and how much can you contribute? The first requirement is that you have some type of high-deductible healthcare plan, and the IRS has specific rules defining these plan. Therefore if you have a HDHP, you are eligible to contribute to an HSA. In 2016 the contribution limit is $3,350 for single filers or for single individuals participating in HDHPs. And $6,750 for people who are part of a family plan.

You can of course use your HSA to pay day to day medical expenses. However, the tax advantage is to pay your medical expenses out of pocket if you can afford it, deduct them on your taxes and accumulate your HSA for the future. When you reach age 65, your HSA functions like an IRA. So, if you are using the money for qualified healthcare expenditures those withdrawals are all tax-free. If you are using the money for other things beyond healthcare expenses those withdrawals are taxed at your ordinary income-tax rate. Keep in mind that this can be reimbursed back to you for your Medicare costs each year.

If you can stay healthy the HSA can be a savings account that you can hold onto for many years. You can just fund the HSA to the extent that you possibly can, and then leave the money in your HSA to compound for your use during retirement. This compounding will take place if you have your money in a HSA account that allows you to invest in stocks or bonds, similar to your IRA account.

One problem many people contributing to HSAs face is that their employer-provided HSAs are just bank accounts and have no provision for investing. There is however a workaround, just go ahead and contribute to that employer-provided HSA. Have your pretax contributions come right out of your paycheck and into their HSA, and then periodically throughout the year, you can transfer the HSA assets from their HSA provider account to the HSA account of your own choosing (one that allows investing). Keep in mind that if you don’t have employee health insurance you can get an Obama Care HSA private insurance plan and just set up the HSA at a private bank or institution. In this case your HSA contributions are 100% credited on against your income on your 1040 tax return, along with the other benefits mentioned above. The bottom line is that if you qualify for an HSA, you want to be able to not just save but invest the money in your HSA account.

If you qualify for an HSA it can be a great tax shelter.

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