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An amazing new tax deduction and employer benefit that is often overlooked... the HSA! - by Sean Dever, CPA

Most people don’t think about an HSA, or Health Savings Accounts, as a savings account. Instead, they think of it as an account where you set aside money to spend on health care items during the current year. It’s time to change that way of thinking! An HSA can be a great addition to an IRA or 401(k) plan, and if funds are limited it might be better to contribute to an HSA instead of the IRA. And this could be a less expensive employer sponsored benefit as well.

With a traditional IRA or 401(k), if you are eligible, you get a tax deduction for the amount you contribute to the plan. The money grows tax-deferred, and then you pay taxes when you withdraw it in retirement.

With an HSA, you get the same tax deduction when you contribute money, but when you use the money in your HSA for medical expenses and qualified health insurance premiums, it comes back out tax-free. And it’s a certainty today that everyone will have medical expenses of some kind; so use tax free dollars to pay for them!

Contributions go IN and OUT without paying any taxes. Double benefit!

To be eligible for the HSA you must have a high deductible health plan or your employer must offer such a plan. If you don’t have one of these today you will likely have one in the near future. As you look at the expected health care costs over one’s lifetime you’ll quickly realize that the HSA is an effective savings tool to meet these costs.

Lastly, if you happen to be one of those fortunate folks who never incurs any medical expenses then you can take the money out of the plan at age 65 with no penalty and only pay tax on the earnings, which is consistent with the tax treatment of the IRA and/or 401(k) plans.

As with anything in life we are always given a bunch of options. I personally like to strike a balance and use whatever options are given in the best order, which is usually dependent upon an individual’s ability to save, current assets and income, current medical conditions, etc. The HSA is a wonderful tool and I’ve implemented it personally as well as within my business for my employees because of the long term benefits it offers. I’m also able to “match” the contributions that my staff make similar to the retirement plans offered which is a benefit for the business & the individuals.

If you would like more information on the above, or help with any of your tax or financial needs, please contact us today for more information. We are waiting to serve you.

Sean Dever, CPA & Associates
voice: (617) 510-7149