Monday, November 28, 2022

HSAs are amazing!

July 8, 2022 by  
Filed under Highlights

BY CRAIG KIRKLAND, EVP/Director of Retail Banking, Nevada State Bank

Craig Kirkland

The low unemployment rate has a silver lining for many workers. It has driven up wages as companies compete for limited labor. And it has prompted some employers to revisit and increase existing perks and benefits in order to attract and retain more workers. 

Among those benefits, Health Savings Accounts (HSAs) are by far my favorite. What if I told you there was an account that could be used for medical expenses, while allowing you to put away pretax dollars — reducing your taxable income and potential tax liability? What if that account allowed you to pay for eligible medical expenses this year and carry any unused balance forward in perpetuity? 

What if that account allowed you to invest in any number of different options? 

What if I told you that when you turn 65 you would be able to use those dollars for any expense without paying a penalty and that you would continue to receive the same tax-free withdrawal capability if you paid for qualified medical expenses? 

Well, that is the HSA. If you’re young and healthy, you have a lot of runway left — so the tax-deferred growth over time can be significant. You can find complete details in IRS Publication 969 (https://www.irs.gov/publications/p969), but here’s a quick rundown on pros and cons:

Pros include: 

These are pre-tax dollars — so it is a tax savings vehicle. 

Tax-free withdrawals for eligible medical expenses. 

After some minimum balance hurdles, you have investment options that could yield higher returns. 

At 65 years of age, you can withdraw for any expense without penalty. 

It’s portable — and will remain with you if you change jobs, change insurance, or even retire.

Cons include: 

You must have a high-deductible insurance plan option with minimum deductibles required. 

If you withdraw before the age of 65 for non-eligible medical expenses, you will pay a 20% penalty and the withdrawal will be considered taxable income 

After 65 years of age, additional contributions can’t be made, even if you are still employed. 

If you invest your balances in stocks or bonds, you have market risk as in any similar investment. 

You have to find what works best for your individual situation. If it makes sense for you, use and grow your HSA as a means of reducing your tax liability while also building balances to offset current, near-term or long-term medical costs.

 

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