Health care costs are rapidly increasing and could put a dent in your wealth-planning goals during retirement. What if you could prepare for future health care costs while building wealth at the same time? The health savings account makes this possible!
What is a health savings account?
If you aren’t familiar with the Health Savings Account, speak to your trusted financial coach/advisor about your options and how this could fit into your wealth plan.
An HSA is a tax-friendly health savings account used to pay for current or future health care expenses that you may incur during retirement. You can think of it as a personal savings account for medical expenses but with bonus benefits. You just have to use the money for qualified medical expenses in order to maximize your perks and avoid taxes.
Established in 2003 as part of the Medicare Prescription Drug, Improvement, and Modernization Act, the HSA has a reputation for being the most tax-beneficial account around town for people who have good health and an adequate savings rate.
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The money you contribute to an HSA is not taxed when it goes in, not taxed as it grows, and not taxed when it’s withdrawn for qualified medical expenses. You’re getting triple tax savings!
What’s the catch? You need an HSA-eligible, high-deductible healthcare plan. These are plans that allow you to pay lower monthly premiums but require you to pay a greater amount of your initial health care costs before your insurance kicks in. If you currently have health concerns and have high medical bills, an HSA might not be an ideal account for you.The Freelancers’ Guide to Health Insurance
You cannot be covered by another health plan, claimed as a dependent on someone else’s tax return, or enrolled in Medicare if you want to get access to an HSA. There are also annual contribution limits that you must be aware of when opening your account.
Do your research and talk to your team of advisors about all the pros and cons associated with an HSA account. If you’re seeking to build wealth in your HSA, here are some things you should know about getting started in the right direction.
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RELATED: The Freelancers’ Guide to Health Insurance
1. Tax-Deductible Contributions
Do you want to pay fewer taxes this year? Contribute to your HSA. The money that you put into your HSA is
