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Health Savings Accounts Offer Multiple Tax Advantages

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February 17, 2023

By Chip Wagner–

Why have an HSA?

An HSA, or Health Saving Account, is a TRIPLE tax advantaged savings and investment account. The money you put in is deductible from both federal and New York State taxes so that it grows tax free with stock market returns, plus you can withdraw it tax free, as long as you use it for qualified medical expenses – such as:

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Deductibles and copayments at the doctor’s office

Co-insurance

Hospital expenses

Medicare premiums

To qualify as an HSA, an account must be a high-deductible health plan as defined in federal law. The plan must include a certain minimum deductible and a certain maximum out-of-pocket limit.

The reason you should have an HSA is threefold. First, we all know healthcare costs are big and getting bigger. According to Fidelity Retirement Health care, an average couple age 65 in 2022 may need approximately $315,000 saved [after tax] to cover their health care expenses in retirement. Medicare covers some medical expenses, but not everything. And Medicare isn’t free. For 2023 you can contribute to a HSA plan up to $3,850 as an individual or $7,500 per family. If you’re 55 or older you can contribute an additional $1,000 per eligible participant.

Second, an HSA can also act as a tax-advantaged supplement to your retirement nest egg, available to cover medical bills instead of drawing down your other savings.

Finally, a HSA account is different from a flex saving, which is “use-it-or-lose-it” at year end. HSA money can be carried forward, that is, if you change employers, you can take your HSA dollars with you. HSA accounts are available from many employers & brokerage firms.

With its contribution limits, I believe it is the best saving vehicle—better than a Roth, 401-k, IRA or 529 account. Your contributions are pre-tax, your growth is tax deferred and your withdrawals are tax exempt for medical expenses. This is a saving vehicle you should explore!

Chip Wagner CFP is a long-time member of the Rotary Club of the Tarrytowns. Now retired after 38 years at Merrill Lynch, his new mission is to educate people on how to manage their finances wisely. This spring, he is teaching a class at Westchester Community College: Six Concepts to Improve Your Financial Literacy—Learn six concepts to help you better manage your personal finances, including budgeting, cash flow, yield, FICO scores, net worth and equity. CE-FIN 2083, 2 Tues., Apr. 11-18, 6:00-8:15 pm, KNC-3,

To find out how to register, call 914-606-6830, press #1 or emailworkforceandcommunity@sunywcc.edu

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