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Health Savings Accounts (H.S.A) Triple Tax Advantages

With many employers in the middle of open enrollment for 2019 benefits, let’s reexamine Health Savings Accounts (H.S.A.). H.S.As. are only available to people who have a qualifying, high-deductible insurance plan.

The H.S.A Triple Tax Advantage

(1)   Contributions to an H.S.A are tax-deductible for Federal purposes, so they reduce your federal income taxes owed. Some companies offer a pre-tax payroll deduction. Other companies have no pre-tax deduction and your deduction is claimed on your tax return.

(2)   Investments earnings in your H.S.A. account grow tax-free at the federal level.

(3)   Funds can be withdrawn tax-free if you use them for qualified medical expenses.

Together, the benefits of pre-tax contributions, tax-free earnings, and tax-free withdrawals for qualified medical expenses can add up to significant savings over the course of a family’s life if they are healthy and let the funds accumulate. So think of the H.S.A. as a piggy bank for medical expenses that can grow similar to an Individual Retirement Account (IRA).

Another bonus is that many employers want you to join a high-deductible insurance plan so they save on premiums. To entice you, many employers will make a contribution to your H.S.A.

Note: California does not allow a deduction for H.S.A. contributions and taxes earnings in your H.S.A. This is a surprise to many companies, payroll providers and taxpayers.

If you are enjoying my tax and finance tips and would like to buy me a beverage

Richard Pon CPA, CFP