The Smartest Tax-saving Account Most People Aren't Using

Much has been written about IRAs, Roth IRAs, 401(k)s, College 529s and various other savings accounts for different goals. All of these account types have distinct savings and tax advantages which match different objectives. Yet none of them hold a candle to the only vehicle in America which is Triple-Tax Free. And that would be the “Health Savings Account”, or HSA for short.

A HSA is available to those who have “high deductible health insurance” plans (checking policy documents or asking a health insurance agent is the best way to find out if you qualify).

If a person qualifies for an HSA account, $3,350 can be deposited each year and used for healthcare expenses. For a family, that amount increases to $6,750. Funding the account comes with the following tax benefits:

  1. Contributions are tax-deductible.

  2. Your account balance can be invested and grows tax-free.

  3. Distributions are tax-free.

Further benefits include:

  1. Money can be used any time for medical checkups and procedures.

  2. Money can be used for prescriptions and qualifying pharmacy purposes.

  3. Money can be rolled to an IRA (if that’s more advantageous).

My HSA account, through HSA Bank, sent me a checkbook and a debit card. Paying for family checkups and ‘scrips couldn’t be more convenient. The times when I forget to use my HSA account for payment, I can “reimburse” myself via ACH or check with no headaches.

One drawback is that the distributions can only be made tax-free for health care expenses. However, with the rising cost of healthcare, it makes a ton of sense to save money into one of these accounts. In fact, Fidelity’s Retiree Health Care Cost Estimate projects the average 65-year old couple will spend over $260,000 on healthcare-related expenses throughout retirement. Having an account outside of an IRA to tackle medical expenses might be just what the doctor ordered.

TaxesKyle WallingSavings, HSA