Health Savings Arrangements Are a Rich Habit

A Health Savings Arrangement (HSA) is a tax planning tool that offers many tax advantages.

Why Would You Set Up an HSA?

• The amounts you contribute to an HSA, every year, are tax deductible. You have up to April 15 to make your HSA contributions for the prior tax year.
• You can also make pre-tax contributions to an HSA, if you are a participant in an employer-eligible HSA plan. These pre-tax employee contributions are not subject to income tax, social security tax or unemployment tax.
• You can invest your HSA money in mutual funds, bonds, annuities, stocks, etc. Investment gains within the HSA are not taxed.
• You can make tax-free withdrawals from your HSA for the following:
  • • Qualified Medical Costs
    • Qualified Dental Costs
    • Qualified Vision Care Costs
    • Qualified Long-Term Care Costs
    • Health Insurance Premiums
    • Employee Health Insurance Premiums
    • Medicare Part ! Premiums
    • Medicare Part B Premiums
    • Medicare Part D (Prescription Drugs) Premiums
    • Medicare HMO Premiums
    • Medicare Advantage Premiums
    • Long-Term Care Premiums

How Much Can You Contribute to an HSA each year?

The amount you can contribute to an HSA can change every year, due to inflation.

For 2020, the maximum contribution amounts are as follows:

• Single HSA Plan – $3,550
• Family HSA Plan – $7,100

One More Benefit

Once you reach 65, you become ineligible to contribute to an HSA. However, you can make non-qualified withdrawals without being subjected to the 20% penalty. The non-qualified withdrawal, however, will be subject to income tax.

In effect, you can use HSAs as a supplemental retirement plan.

Penalties

There are certain penalties to be wary of with respect to HSAs:

• Non-Qualified Withdrawals – If you are under age 65, any non-qualified withdrawal is subject to a 20% penalty and the withdrawal is also subject to income tax.
• Non-Qualified Contributions – If you make non-qualified or excess contributions, you will be assessed a penalty of 6% each year until you cure the violation. You cure it by withdrawing the disallowed or excess contribution.

Be Sociable, Share!

• 
•