The currently stagnant economy has millions of working Americans looking for ways to maximize how much money they’ll have access to as retirement approaches. You work all your life, only to come away with enough money to comfortably last you perhaps a decade after your working days are over.
This, fortunately, does not have to be the case. With the health savings account of the previous presidential administration’s Affordable Care Act, you have a powerful mechanism by which to utilize tax deductions to enhance your future financial prospects. Follow these tips to getting your health savings account as early as possible, so it starts accruing more money.
Obtain a Qualifying Insurance Plan
Most people get their insurance plans through their employers, so your first order of business is to see whether or not your boss offers a health savings account (HSA). Even if they do not offer one specifically, they might offer one of the insurance policies that are HSA-qualifying.
Of course, if you’re a small or medium-sized business owner, yourself, then you can implement an HSA more easily by simply choosing one of several qualifying policies. It’s worth noting that
even sole proprietors can enroll in one; you don’t absolutely need to have your own business to do so – it just makes the process a bit more straightforward.
Benefits of the HSA for Tax Purposes
The HSA is especially-valued by business owners because whatever money goes into it is tax deductible. As mentioned above, however, it doesn’t have to be just business income – any pay is applicable. As a result, it has the potential to lower your tax bracket in this progressive tax system we have. As an example of how this could lead to you having more money available, see this:
- Tax deduction for single people in 2016: $3350
- Tax deduction for single people in 2017: $3400
- Tax deduction for families in 2016: $6750
- Tax deduction for families in 2017: $6750
- Tax deduction for married couples: $6750
Clearly, then, if you’re single and can take advantage of a health savings account, you could end up with more money in the bank than with any other insurance policy.
Additionally, as your HSA continues to grow with the contributions you make towards it, it isn’t subject to some of the restrictions that other accounts suffer. You don’t need to spend it by a certain date to keep the benefits, for example, which gives you a great opportunity to take advantage of investments. If you play the stock market, you can divest some of your winnings to this account – they are not considered contributions. There are limitations on frequency, however.
Lastly, insofar as the tax benefits are concerned, money from your HSA can be used towards direct medical expenses – and it still isn’t taxed. There’s a wide range of options here, too; for example you could spend money on hospital stays, dental care, chiropractic care and other. All you have to do is transfer money to your HSA beforehand, and then use your HSA card to extract that same money – tax-free – from your account when you’re ready to pay. Don’t worry about memorizing the kinds of medical-related costs that are eligible; the IRS has a large tome detailing this: IRS Publication 502.
Investment Options with the HSA
This is yet another benefit of the HSA; you should consult with a more comprehensive manual, however, on the details on how to invest with this investment vehicle. Generally, people who are interested in investing with this opt for the hands-free mutual fund that the bank provides. If, however, you’re a bonafide investor, yourself, then you may want to take the reins and play the market manually.
HSA as Retirement Money
Right before you reach 60 years of age, you can actually take money out of your HSA for any purpose as long as you pay federal income tax on the amount you use – similar to a gold IRA. This works especially well for people who end up not requiring much money for healthcare-related expenses in the future; thus, you can take advantage of the tax benefits of the HSA in the beginning, and then just use it as an IRA later.