Have you heard of Health Savings Accounts (HSA's)? They are a government-approved tax savings tool that enables you to save money specifically for health-related expenses in a way that enables you to avoid paying tax on that money. So whatever tax bracket you are in, an HSA is one of the smartest ways to ensure you are not paying too much in taxes. Some people shy away from HSA's for a variety of reasons, but the info I provide on this episode might change your mind.
Do you have a high deductible health plan, with a deductible that is at least $1,400 for individuals or $2,800 for families (2022 guidelines)? If your plan has deductibles less than those figures you cannot contribute to an HSA. But if you DO have a high-deductible plan and are contributing to an HSA, and then MOVE to a lower-deductible plan, then you will still be able to use the funds you have put into that plan, for qualified health care expenses. That is qualifier # 1.
Qualifier #2 has to do with the guidelines for the HSA eligible plan you participate in. Is this plan with a maximum out-of-pocket expense for individuals at $7,050 or $14,100 for families? If so, you can move on to Qualifier #3, which has to do with your “dependent” status.
Are you able to be claimed as a “dependent” on anybody’s tax return? If not, you can contribute to an HSA!
When the money comes out of an HSA, it must be done according to the rules and guidelines so that you do not have to pay any penalties or taxes. That is the way to go because if you have to pay penalties and taxes, you are losing the benefits of an HSA. When it comes to taking money out of your HSA, what you need to be able to answer is this question; "Was the distribution used to pay or reimburse for an expense to treat or prevent a physical or mental illness." There is a whole list of what is considered an eligible expense. Next, you need to ask, "Was the qualified expense paid or reimbursed by any health insurance plan, or was the qualified medical expense claimed as a medical expense deduction?" If so, the distribution is not a tax-free disbursement… and that is BAD news all around because not only will you pay taxes, you will also pay a 20% penalty for using your HSA for non-qualified expenses.
Most of the eligible expenses are related to direct health care, like doctor’s visits, vision care, and expenses, etc. But there are other health-related expenses you can use that money for. One of them is long-term care insurance premiums. A portion of the premiums can be paid, depending on your age at the end of the year the funds are used. Some examples...
Some people do a great job funding their HSA account and have very little need to draw money out of it (that means they stay pretty healthy). So, what should they do with all those healthcare-designated dollars as they get older? Medicare provides a great opportunity to make use of those funds. You can pay Medicare part A premiums with HSA dollars (if you are a high-income earner and therefore have premiums on Medicare part A). All Medicare part B premiums can be paid with HSA dollars as well. The same goes for Medicare part D. AND… if there are co-insurances attached to those parts of Medicare, their premiums can be funded with HSA dollars. The main exception to that is that Medicare supplemental policies are not typically eligible for HSA use. But if you do need to use the funds for those policies and you are over 65 years old, you will pay taxes only, no penalties.
This is just a snapshot of how you can benefit from Health Savings Accounts. To hear everything you need to know, listen to the episode!
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The Best In Wealth Podcast is hosted by Scott Wellens. Scott Wellens is the principal at Fortress Planning Group. Fortress Planning Group is a registered investment advisory firm regulated by the Securities Act of Wisconsin in accordance and compliance with securities laws and regulations. Fortress Planning Group does not render or offer to render personalized investment or tax advice through the Best In Wealth Podcast. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.