Health Savings Accounts (HSAs) are savings accounts that are used to pay for qualified medical expenses. In order to contribute to an HSA, you have to have a high-deductible health plan (a/k/a HDHP).
What’s so great about HSAs? Three tax advantages:
1) Contributions to the HSA are tax deductible
2)The money grows tax-free while it’s sitting in the HSA
3)Withdrawals from the HSA are not taxed if the money is used for qualified medical expenses
For a complete list of qualified medical expenses, refer to IRS Publication 502 Medical and Dental Expenses on the IRS website at www.IRS.gov.
There is one caveat with these accounts: if you withdraw money from the HSA when you are younger than age 65 and you don’t use the money for qualified medical expenses, the IRS will impose a 20% penalty on the amount withdrawn. That is a steep fine.
HSAs can be a very powerful tool if used properly and they fit very well into a comprehensive financial plan. At Rand Financial Planning, we help our clients prepare for safe and secure retirements by building a comprehensive financial plan and then guiding them through retirement. Contact us to find out how we can help you plan for your retirement.