Health Savings Accounts (HSAs) are tax-advantaged individual savings accounts designed specifically to pay for the medical expenses of individuals who are enrolled in high-deductible health plans (HDHPs).As long as HSA funds are used to pay for qualified medical expenses, account owners will not pay income tax on the amount withdrawn.The funds in these accounts are similar to any normal investment account, with the account owner fully owning all contributions, even if they are made by an employer, and being able to invest the funds into various investment options the financial custodian offers, which will typically be a range of mutual or index funds.
If you don’t have an HSA yet, check out our list of the .
Contributions to HSAs are tax-advantaged at three levels:1.) The amount of the contribution is tax-deferred, meaning it is deducted as an adjustment on page one of the account owner’s income tax return and not subject to income tax until it is withdrawn2) Withdrawals used for qualified medical expenses are never taxed,3) Investment gains within the account are also never taxed, as long as they are also used for qualified medical expenses.These are three powerful benefits that exceed the advantages offered by many other tax-advantaged accounts.These tax advantages are why we call !
You must contribute to your health savings account by the tax filing deadline for the year in which you’re making your HSA contribution.Note For 2019 Contributions: The IRS has confirmed the HSA contribution deadline is extended until 7/15/2020. See this FAQ (Question #21). Learn more on the tax filing deadline.Here are some deadlines:
The IRS announced on May 20, 2020 that they are increasing the HSA contribution limits again.
There are no income limits to be eligible to contribute to an HSA although you do need to enroll through your employer and have a high-deductible health insurance plan in order to qualify.Contributions are also 100% tax deductible at all income levels.
The IRS announced on May 28, 2019 that they are increasing the HSA contribution limits.
Last year, the IRS announced the limits for 2019 were going up! That’s a huge win for savers!
There are no income limits to be eligible to contribute to an HSA although you do need to enroll through your employer and have a high-deductible health insurance plan in order to qualify.Also, remember you can contribute to your 2019 HSA all the way until April 15, 2020 – the tax deadline. So, if you still have some room in your account, top it up and save on taxes (and save for yourself too)!
For those who are already using an HDHP and expect to have a significant amount of qualified medical expenses, the benefits of avoiding income tax on these expenses far outweighs to effort to set up an HSA and incur the annual management fees that the financial custodian may charge.Combined with the fact that there are no income limits or phase-outs to qualifying for HSAs, this can be a valuable tax-advantaged strategy for anyone with an HDHP.