With the start of a new year and a new tax season, it is wise to review your financial situation to ensure you are utilizing key tax saving strategies. If you are enrolled in a High Deductible Healthcare plan you are eligible to open a Health Savings Account (HSA). An HSA provides a way to pay for unreimbursed, qualified medical expenses, and is a tax-advantaged way to help you build savings for future medical costs. You can only open an HSA if you have a High Deductible Plan. If you are enrolled in Medicare or are a claimed dependent on another person’s tax return, you are not eligible to open an HSA. Visit www.irs.gov for more details on HSA eligibility requirements. HSAs are different from Flexible Spending Accounts. With an HSA, funds roll over from year-to-year, and remain under your control — not your employer’s.
Tax Advantages
Contributions to an HSA may be tax deductible, and withdrawals for qualified medical expenses are tax-free, as well. Any deposit to an HSA is considered a contribution, the total of which is limited to a certain dollar amount per year, as determined by the IRS. Because an HSA has tax implications, like an IRA, you should consult a trusted tax professional. There are many online resources available, too, such as the IRS website, at www.irs.gov.
The maximum contribution limits for 2024 are:
- Single High Deductible Plan: $4,150
- Family High Deductible Plan: $8,300
There are several other benefits associated with HSAs, including flexibility, portability, and convenience:
- Flexibility – Funds rollover from year- to- year so they may be used to pay for current or future qualified medical expenses. If you normally have low medical expenses throughout the year, the account may be used strictly as a way to build up savings for future medical costs. If you don’t use the funds, the account operates like an IRA, whereby contributions are made with pre-tax dollars; earnings are tax free; and withdrawals at retirement are taxed as income.
- Portability –Your Health Savings Account always stays with you! The funds belong to you. Even if you change your health insurance, leave the workforce, or change jobs, your HSA will still be available for qualified medical expenses.
- Convenience – You may use an HSA debit card, checks, or ATM cash withdrawals to pay for your qualified medical expenses. If you use online banking, you may also easily view your HSA balance and activity online and with your mobile device. And you may use your HSA as your online bill pay funding account to pay your medical bills online.
If you are enrolled in a High Deducible Plan and are not using an HSA, consider opening an account to save for medical expenses and to save on taxes. And always consult your tax advisor to fully understand the tax benefits and how they impact your financial situation.
Learn more about ESL Health Savings Accounts.
