If your employer offers a High Deductible Health Plan (HDHP) you need to take them on their offer.
Once you are enrolled in the plan, you are entitled to have a Health Savings Account (HSA). Not to be confused with a Flex Savings Account (FSA).
The HSA is widely the best decision you can ever make.
- The HSA is a triple tax advantage! Yes, it’s a savings account and you can contribute 3,550 for tax year 2020 for individuals, 7,100 for families and if you’re over 55, you have a 1,000 catch up for a total of 8,100.
- Yearly contributions will be deducted from your taxable income! That takes -3550 or more off your taxable income yearly!
- HSA funds can be used only for medical expenses. You will incur a hefty amount of medical expenses in your lifetime and the HSA can cover the expenses for you tax free!
- Nearly every American will have healthcare expenses during their lifetime, especially as they age, and there is no better tax-favored way to build wealth to cover those expenses than an HSA account. At open enrollment, make sure to explore the health insurance options which allow to you fund an HSA, max out your contribution if you can, and don’t spend the account on deductibles and co-payments–save it for the much bigger medical costs when you’re older.
- Unlike an FSA, unused HSA funds rollover every year and do not expire. No use it or lose it rule.
- HSA funds can be invested so it can grow and compound tax free. There are no taxes due on your HSA as the account grows. That means you will not receive a 1099 to declare capital gains on investment transactions in the account, and any dividends paid by your funds are reinvested without being taxed.
- If you are under age 65 when you make a non-qualified withdrawal, the distribution will be taxable and subject to a 20% tax penalty. However, if you have reached age 65, distributions will be treated as taxable income just like a 401(k) or IRA distribution, but with no penalty.
- Unlike IRA and 401K accounts which require annual minimum distributions once you reach 70 ½, there is no need to withdrawal. The full balance can grow throughout your lifetime and is willable as well. However, if someone other than your spouse is your beneficiary, the entire account becomes taxable to your beneficiary in the year of your death.
Your employer will provide a bank or investment company to handle the HSA like their 401K plan. If they do not offer an HSA alongside their HDHP, you can use a service that I recommend called “Lively.”
Lively will issue you a debit card to use for your medical expenses as well. They also use TD Ameritrade as their broker so you can invest your funds through them. Lively does not charge any monthly or service fees to use their platform.
If you have left an old employer that you had an HSA with and the HSA is being dormant, you might want to check and see what fees you are being charged per month, quarter and yearly. You can do a trustee to trustee transfer from your old HSA to Lively.
Keep in mind, it will not hurt you tax wise being a trustee to trustee transfer. I did this myself and probably saved myself close to 150 A YEAR in fees! That adds up. Run your numbers and see what’s best for you and your family.
Also, if you have an HSA plan currently but didn’t contribute as much as you wanted to do for the tax year and want to get some more tax benefits. You can also open a Lively account and contribute your remaining balance their as well. The total just needs to be the correctly allocated amount you need to deduct. See above the contribution limits for tax year 2020.
*Please note, my endorsements of Lively are strictly my opinion, thus I am not being compensated by them. *