These 3 Tax Benefits Make an HSA Look Pretty Good

Written By Mary Beth Eastman
Last updated April 28, 2020

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December 17, 2018

Simple. Thrifty. Living.

High-deductible insurance plans qualify for a special savings account that the federal government regulates. If you have an individual deductible of $1,350 or a family deductible of $2,700, you may be able to open up a health savings account, or HSA. You get three significant tax benefits that make HSAs a great way to pay for your medical costs and reduce your tax obligations.

When you deposit money into your HSA, it’s tax deductible. This means that it lowers how much income you get taxed on. If you’re near the edge of a lower tax bracket, contributing to your HSA could move you down to that new rate. Some employers offer funds for HSAs, and you’re not responsible for tax payments on them. The maximum that you can add to an HSA each year is $3,450 if you have an individual health insurance plan and $6,850 if you cover your entire family. These funds rollover annually so you can build up the account. Many online tax services will help you figure out these deductions.

HSAs act as typical savings accounts in that you earn interest on your funds. The rates vary based on many economic factors. No matter how much you earn in interest, you can enjoy the increase tax-free.

The whole point of an HSA is to cover your medical costs. Unlike some other investment accounts, when you withdraw from your HSA for any qualified costs, you don’t receive a tax penalty.

You can use the HSA funds for a wide range of medical goods and services. For example, copays, prescriptions, medical procedures, dental visits and eye exams are all acceptable uses of the HSA. The only time you have to worry about tax penalties is if you take out funds for other reasons.

An HSA is a valuable tool for planning for your health costs while reducing your tax liability. If you have the option to open up an HSA with your health insurance, you can get a lot of mileage out of it.

About the Author

Mary Beth Eastman

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

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