How I’m Talking to Clients About Maximizing Their HSA | Global News Avenue

I’m always happy to educate clients on how to Health Savings Account (HSA) It is a powerful savings tool with unique “triple tax exemption” benefits. Our responsibilities include helping clients maximize their HSA’s contribution, account growth and distribution plans, and use the account to save taxes and create long-term security.

What I tell my clients

In 2024, health savings account contribution limits are $4,150 for individuals and $8,300 for families. If you are in a high-deductible health plan (HDHP).

Contribution limits include employee and employer contributions. If your employer is also contributing to your HSA, reduce your contribution so that the total contribution does not exceed the $4,150 or $8,300 allowed in 2024. People 55 and older can contribute an additional $1,000.

Optimize your contribution

You can contribute to your HSA through payroll deduction or directly from your bank account. However, if you choose the latter, you will lose the additional tax benefits. Payroll contributions are subject to federal income tax, state income tax, and Fika Tax(social Security and medical insurance). On the other hand, direct bank account contributions only reduce federal and state income taxes, missing out on the 7.65% FICA tax savings.

Build up your capital

Unlike Flexible Spending Accounts (financial services authority), an HSA can be accumulated over years or decades, rolling over and growing each year. To get the most out of long-term savings, I often refer to HSAs as “healthcare IRAs.” HSA providers typically require you to keep a minimum amount of cash (usually $1,000 to $2,000) and allow you to invest the remaining balance. These investments are typically low-cost mutual funds that grow without taxes on interest, dividends, or capital gains as long as the funds are withdrawn for qualified medical expenses.

There is no time limit on reimbursement of qualified medical expenses from an HSA as long as the expenses were incurred after establishing the HSA and using a high-deductible health care plan. Save your receipts indefinitely so you can make tax-free withdrawals in the future.

Withdraw your HSA funds

HSA funds can be used to pay for a variety of medical expenses for you, your spouse, and your dependents. Some common qualifications expenditure Includes medical, dental, vision, mental health services, prescription drugs, over-the-counter drugs and certain health care premiums. As a retirement savings vehicle, you can use an HSA plan to pay medical insurance premium, cobra, long term care insuranceand enjoy health insurance while receiving unemployment benefits.

HSA funds withdrawn before age 65 for nonqualified expenses are subject to income tax and a 20% penalty. After age 65, you can withdraw money for non-medical expenses without penalty, but you must pay ordinary income taxes on the distributions.

bottom line

HSAs are a powerful tool for long-term savings. By maximizing your contributions, you can grow your money tax-free for future health care expenses, making it an important part of your retirement strategy. With flexible withdrawals and the ability to be reimbursed for past expenses, an HSA is key to securing your financial future.