Simply put, a health savings account (HSA) is a personal savings account you can use only for medical expenses. It’s a type of savings account funded with untaxed dollars that works similarly to a traditional IRA or 401(k) plan. The account offers attractive insurance and tax benefits such as better health care management, increased retirement savings and better estate planning advantages.
If you want to maximize your tax breaks, now is a great time to consider opening an HSA, provided you qualify.
What Is HSA Insurance vs. Health Insurance?
HSA insurance is a health savings option in which you or your employer open a savings account with a bank or another financial institution to save funds for your medical and healthcare needs. On the other hand, health insurance is a payment plan in which you pay an insurer to bear your future medical and hospitalization expenses under different coverage options.
What Are the Benefits of an HSA?
HSAs offer several benefits that are tied to cost-saving and estate planning, which include:
- Lower insurance premiums: HDHP premiums are typically lower than other health plans.
- Tax-free payments: You can pay for qualified medical costs with untaxed dollars.
- Can be used for non-medical expenses after age 65: After age 65, most HSAs allow you to withdraw funds for non-medical expenses. However, the money you withdraw will be taxed.
- Spousal benefits: If your spouse is the beneficiary, they can keep the HSA, continue to receive tax-free growth and be able to make withdrawals for qualified medical expenses.
- Non-spousal benefits: If the owner’s spouse is not the beneficiary, the HSA benefits expire, and the beneficiary is taxed on the account’s current market value. However, beneficiaries can use HSA funds to pay for any qualified medical expenses incurred before the owner’s death within one year after death, avoiding taxes on those amounts.
Maximizing Your HSA Benefits
Whether you want to enhance your retirement savings or plan your estate, understanding what HSA benefits are and how to maximize them is crucial. Fill out our contact form today for personalized advice and more information on HSAs.
DISCLAIMER:
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The services of an appropriate professional should be sought regarding your individual situation.
