HSA Handbook by HSAHarvest.com

Contents

A lot of HSA advice is misleading

This handbook consists of 10 pages:

This guide is the result of years working through what the latest tax laws and successful people show us is the most efficient way to build and use a HSA.

It’s for both men and women. It’s primarily for beginners, but there’s plenty of well-backed advice for advanced & intermediate savers/investors too.

We wrote this guide because much of the casual HSA and investing advice is unsubstantiated or misleading. We can’t blame bloggers for it, because some of the facts in this guide have not been broadly published outside of the legal tax literature.

As a result, this handbook contradicts some popular HSA/healthcare/investing recommendations. Throughout this handbook, we support our claims by citing tax codes and showing you how to optimize your gains so you can confirm you’re growing your HSA the right way for yourself.

HSA building advice for everyone

Imagine a special savings account where you can deposit money without paying taxes on it right away. As your account grows, you won’t have to pay taxes on the money you make from it, even if you invest some of it. And when you take money out for certain expenses, you still won’t have to pay taxes on it.

This amazing benefit is called the “triple-tax” benefit, and it’s only available with a Health Savings Account (HSA).

With an HSA, you don’t pay taxes on the money you put in, the money it earns, or the money you take out for qualified expenses. Other retirement savings plans, like traditional IRAs, Roth IRAs, and 401(k)s, usually make you pay taxes either when you put money in or when you take it out.

(Note that California and New Jersey tax HSA contributions.)

Health Savings Account benefits

For People

Because Health Savings Accounts (HSAs) offer more tax benefits than any other savings option in the United States, it’s important to understand how you can qualify for one. Doing so can help you lower your taxes, safeguard yourself against rising medical expenses, set money aside for unexpected healthcare needs, and boost your retirement savings.

With an HSA, you’re in control. Your HSA funds carry over each year, and if something happens to you, the account becomes part of your estate or can transfer to your spouse as another HSA.

HSAs are super flexible. You can use the money before and after you retire, and they offer more tax advantages than retirement accounts. For instance, with an IRA or 401(k), you avoid taxes when you put money in but pay taxes when you take it out. With a Roth IRA or Roth 401(k), it’s the opposite: you pay taxes upfront but not when you take it out.

If you have a health Flexible Spending Arrangement (FSA), you can put in and spend money tax-free, but you might lose any leftover funds at the end of the year, unless your employer has a carryover or grace period feature.

HSAs are like a mix between a retirement savings plan and a tax-saving superhero. You get to contribute money tax-free, watch it grow without getting taxed, and when you use it for qualified medical expenses, you don’t pay taxes on that either. Plus, you can invest your HSA money, which might be riskier but can lead to even more tax-free growth potential.

But, not everyone can just open an HSA. The IRS has rules. You need to have a health plan that qualifies for an HSA, usually one with a high deductible. There are limits on how much you can contribute each year, and these rules change a bit from year to year.

There are some other restrictions too:

  • You can’t have other health coverage, except for some specific types.
  • You can’t be enrolled in Medicare.
  • And nobody else can claim you as a dependent for taxes.

Beyond the tax perks, HSAs can give you more choices and freedom when it comes to your healthcare. They can also help you manage long-term health conditions by encouraging you to become more informed and involved in your healthcare decisions. And if you stay healthy and don’t spend all your HSA money, it keeps growing tax-free.

For Employers

HSA-qualified health plans offer a way to manage the continuously increasing costs of healthcare without limiting employees’ access to good healthcare. Not only do employers save money on premiums, but they also lower their tax bill because they don’t have to pay taxes on the money they or their employees put into their employees’ HSAs.

For Healthcare in general

HSA-qualified plans offer financial rewards to individuals who actively control their medical costs and play a more engaged role in their healthcare choices, like deciding on treatments, tests, and medicines.

When HSA owners save money, they get to keep it. For instance, if they choose a provider or facility that’s less expensive, they save money. This encourages people to be smarter healthcare shoppers who seek out better value for their healthcare spending. Ultimately, it boosts accountability, competition, and sensible use of healthcare services.

How this guide works

The different pages of this guide are split into three sections to help you easily find the information you need.

Section A covers the basics. It defines key terms and ideas, gives a detailed look at HSAs, and then zooms out to show how HSAs fit in with other types of consumer-driven healthcare options.

Section B is like your personal guidebook for HSAs. It has all the info you need to make smart choices about using this important savings tool to handle both your current and future financial and healthcare needs. And don’t worry—it’s laid out in a clear, step-by-step format that’s easy to follow.

Topics include:

  • What opening an HSA looks like
  • Contributing to an HSA
  • How to spend HSA funds
  • Investing HSA funds

Section C is all about getting organized. It guides you through setting up a system to keep track of your HSA records, clarifies the paperwork you’ll get, and offers details for employers who want to offer HSAs to their staff.

By smartly contributing to both your HSA and other retirement funds, you can lower your taxes and build a more secure financial future for retirement. According to the Employee Benefit Research Institute, a typical couple will need around $296,000 to cover their medical expenses after they retire.

No matter your age, it’s a good idea to include HSAs in your plans for retirement and healthcare. Whether you’re just starting your career or nearing retirement, it’s never too early or too late to start saving for healthcare costs. Younger folks can save up a lot over time, while those closer to retirement can still benefit from using an HSA.

Deciding to go with an HSA-qualified health plan might mean adjusting how you approach healthcare, but it doesn’t mean sacrificing quality.

Summary

HSAs come with three big tax advantages: you get to put money in tax-free, watch it grow without paying taxes, and take it out tax-free for qualified medical expenses. Other healthcare and retirement savings options usually offer only one or two of these perks.

The rules for who can put money into an HSA are:

  • No impermissible healthcare coverage
  • No Medicare
  • Not included as a dependent on someone else’s tax return.

An HSA-qualified health plan doesn’t just offer tax-free money for medical expenses; it also helps solve important healthcare coverage issues:

  • Provides more choice and flexibility than traditional healthcare
  • Helps manage expenses associated with chronic illness
  • Develops more knowledgeable and engaged healthcare consumers. As individuals take more control of their health and reduce healthcare spending, HSA balances grow, creating rewards for better health.
  • Benefits employers by reducing their tax burden

HSAs help improve healthcare overall by making people more aware of their healthcare costs. This encourages them to shop around and do research before making decisions.

Next page – Definitions of important terms and Explanations of key concepts

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