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How to Maximize Your Health Savings Account (Part 1)
Health Savings Accounts can be a powerful wealth building tool, but to do that, you need to understand how they work. Virtus Wealth Management is here to help. This is the first in a series of articles about how to maximize Health Savings Accounts. We will start with the basics to build a foundation and work our way up from there in subsequent articles.
What Is a Health Savings Account (HSA)?
A Health Savings Account (HSA) is a tax-advantaged savings account that lets you set aside money to pay for qualified medical expenses — now or in the future.
It’s available only if you’re enrolled in a High-Deductible Health Plan (HDHP).
The Big Benefit: Triple Tax Advantage
An HSA is unique because it offers three tax benefits:
- Contributions are tax-deductible (or pre-tax through payroll).
- Growth is tax-free (interest and investment gains).
- Withdrawals are tax-free when used for qualified medical expenses.
Who Qualifies for an HSA?
You must:
- Be enrolled in a High-Deductible Health Plan
- Have no other disqualifying coverage
- Not be enrolled in Medicare
- Not be claimed as a dependent
What Can You Use an HSA For?
HSA funds can be used tax-free for qualified medical expenses like:
- Doctor visits
- Prescriptions
- Dental and vision care
- Deductibles and copays
- Some insurance premiums (limited exceptions like Medicare, COBRA, LTC insurance within limits)
Unlike an FSA:
- The money rolls over every year
- You own the account
- You can invest the funds
- It stays with you if you change jobs
Many people also use HSAs as a supplemental retirement account because after age 65:
- You can withdraw funds for any purpose without penalty
- If not used for medical expenses, withdrawals are taxed like a traditional IRA
Our next article will build on this by highlighting some specific, actionable tips that help you take your HSA to the next level.
Source: www.irs.gov
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
