“Where does a homeless accountant live? In a tax shelter!”
I know, I know, it’s a pretty lame joke, but when it comes to this time of the year and your taxes it’s a good idea to look at utilizing some of those tax shelters. Most Americans are aware of some of these tax advantaged vehicles: 410(k) plans, IRAs, and the 529 college saving plan just to name a few. However, one that isn’t as well known is the HSA or Health Savings Account. These plans may offer some great tax benefits for those who are eligible. Want to learn more about the HSA?
HSAs are accounts that allow holders to accumulate cash in order to cover different medical expenses they might incur. There are 3 different tax benefits that these relatively obscure accounts have:
Contributions to an HSA can be deducted from your gross income, providing a tax deduction for the contributor while creating tax free assets for medical expenses you may incur. Unlike FSAs (Flexible Spending Accounts), HSAs contributions can accumulate over time to be used as needed. Annual contribution limits for 2018 are as follows:
For Individuals filing the max contribution is: $3,450
For Family filing the max contribution is: $6,900
Can someone say “Awesome!” Just like above, where if you utilize the strategy of putting money into this and trying to not touch it, you not only get the aforementioned deduction, but the interest grows tax-deferred! This benefit along with the deduction is a long-term approach where if you can let it grow as long as possible you can create a possible protection against the rising cost of health care in the future.
If you are at the point where you need to pay for a medical procedure or emergency, then the HSA is a phenomenal tool. You may not have to worry about touching your emergency fund or taking on any debt if you have been paying in to the plan, and you aren’t taxed on the withdrawals as long as it is a qualified medical expense. Most services that are provided by a licensed health care provider are covered under an HSA, and this includes prescriptions and diagnostic devices. With the rising cost of health care, HSAs can be a utility tool where it can help you save towards your retirement as well as utilize it in the case of medical expenses if needed and have preferential tax treatment.
HSAs may be the obscure cousin you only see at family reunions, but when utilized in a strategic manner they can be an extremely effective savings tool. Not sure if an HSA plan is right for you? Get with your financial advisor and see what your personal written plan says about this possible tax benefit for you. The triple threat of HSAs may very well be the ticket to getting you ready for your future.
Securities offered through LPL Financial. Member FINRA/SIPC. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.