 |
09/07/08 |
Tax Benefits of an HSA
Health Savings Accounts can provide significant tax benefits to eligible individuals. Not
only can HSAs provide tax benefits related to paying for qualified medical expenses, they
may also provide benefits similar to many tax-favored retirement plans. The premise
behind an HSA is to combine a qualified High Deductible Health Plan
(HDHP) with a tax-favored Health Savings Account to access affordable health care premiums, while taking a reduction in your taxable
income.
Health Savings Accounts offer triple tax savings:
- Tax-Deductible Contributions
- Tax-Deferred Growth
- Tax-Free Withdrawals
Tax-Deductible Contributions
A Health Savings Account is like an IRA account that is designated exclusively for covering qualified medical expenses incurred by the account beneficiary (the person who establishes the account) and his or her dependents. Over the life of your Health Savings Account, you could save thousands of dollars in taxes. Employer's take advantage of the HSA being tax deductible for the portion they contribute to each employee. Employees cannot take the employer contributions as a deduction.
Tax-Deferred Growth
HSA funds grow without being subject to taxes unless they are used for non-eligible
medical expenses. However, if used for qualified medical expenses the funds may be withdrawn tax-free.
Tax-Free Withdrawals
Funds grow on a tax-deferred basis, and if the funds are used for eligible medical
expenses, they are tax-free. Like many retirement accounts the funds roll over from
year to year (no "use it or lose it" rules), and funds used after age 65 are able to be used
tax-free for eligible medical expenses or at an individual's normal tax rate for other
purposes.
*Your 1099 SA is mailed by January 31 and your 5498 SA is mailed out by May 31 each
year.
**Representatives from Choice Financial cannot give tax advice under any
circumstance. Please consult your tax advisor for
any information regarding your personal tax situation.
