We continue to see more and more companies offering high deductible health plans (HDHP) with an HSA account option. For healthy adults, if you have minimal medical visits a HDHP with HSA can save you money given the lower premiums and tax deduction for the HSA contributions.
To qualify for an HSA account, you must have a high deductible health plan (HDHP). You also cannot be enrolled in Medicare, be claimed as a dependent on someone else’s tax return, or have other health coverage unless permitted by IRS rules.
If you qualify to use an HSA account, it can be a great tool. This account is the only account available today that offers a “triple” tax advantage. You get an income tax deduction when you contribute funds, the earnings grow tax free, and withdrawals are tax free (if you withdraw funds for “qualified” medical expenses).
What are “qualified” medical expenses?
These are medical expenses that generally qualify for the medical and dental expense deduction based on IRS rules for Schedule A (itemized deductions) on your personal tax return. The list is extensive and worth looking up. A few of the larger items are long-term care insurance premiums (subject to limits based on age) and Medicare premiums. A few smaller items that surprise people are first aid kits, hot/cold packs, sunscreen (SPF-15 or higher), thermometers, and prenatal vitamins The most common are copayments, coinsurance, and deductibles for health, dental, or vision. Make sure you save your receipts to document these expenses.
How much can you contribute?
For 2020 families can contribute up to $7,100, and individuals can contribute up to $3,550. There are catch up contributions for age 55 an older and specific calculations for people that start or end a HDHP in the middle of a year. AP Wealth can help confirm the amount you can put in each year.
What is the strategic withdrawal strategy?
If you remember to keep your receipts to document your qualified medical expenses, the IRS allows you to reimburse yourself in the future when it works best for you. So, if you pay for qualified medical expenses out of pocket and save the receipts, you can let your HSA account grow tax free. At a later date, like years down the road, you can take the tax-free reimbursement for all the medical receipts you have been saving. This allows your account to continue growing tax free!
Our advisors would be happy to talk with you if you’re interested in learning more. To get started, please call us at (706) 364-4281.