Health Savings Accounts
A Health Savings Account (HSA) is a great way for sheltering more money from taxes. HSA’s can be opened individually or through an employer and the amount contributed is excluded from your income. As an individual in 2020, you are permitted to deposit up to $3,550 per year, $7,100 per year for your family and $1,000 catch up contribution if you are 55 or older. For your convenience, many employers allow you to contribute through payroll deductions on a monthly basis.
Let’s face it, we all have medical expenses and there are many benefits of an HSA. At the end of the year, you do not have to withdraw the amount remaining in the account thus allowing it to accumulate. Contributions are excluded from your income as well as if withdraws are made for qualified medical expenses (see below) are also excluded from your income. If you are maxing out your retirement plan, this may be another source to shelter more money for retirement.
When withdrawing the money, it has to be used on a qualified health expense. The list continues to get longer, but some examples of qualified expenses include doctor’s office visits and co-payments, drug prescriptions, vaccines. The detailed list of expenses can be found at https://www.irs.gov/pub/irs-pdf/p502.pdf. If the money is not used for qualified medical expenses and withdrawn from the account, a 20% tax will be imposed (unless the beneficiary reaches age 65, dies, or becomes disabled) with the amount also included in gross income.