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You might want to know a little more about a health savings account.
HSAs are known for their triple tax advantage: contributions are made before tax, growth is tax-free, and withdrawals used for qualifying health care expenses are also tax-free. However, some aspects of these accounts are less well known but could be useful.
âA lot of people don’t really understand all the different benefits, so they don’t take advantage of them,â said Stephen Durso, associate director of customer services at Willis Towers Watson.
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For example, HSAs can be used by employees who have a high deductible health plan.
For this year and next, it’s a deductible of at least $ 1,400 for individuals or $ 2,800 for families. If you have individual coverage, you can contribute up to $ 3,650 to your HSA in 2022; family coverage comes with a maximum contribution of $ 7,300 next year.
Here are some of the hidden benefits.
Not one and done
If you contribute to your HSA through payroll deductions, you can change this deferral rate at any time of the year. (And any unused funds are automatically carried over to the next year with no mandate to use or lose it.)
âEmployees are more generally familiar with flexible expense accounts, where they are stuck in their choice of contribution,â said Durso.
âYou can make changes to your HSA contributions at any time,â he said. “It makes it more flexible.”
Catch-up contributions
Like catch-up contributions for retirement accounts, it is intended for account holders aged 55 or over.
The additional amount you can put in is $ 1,000. However, relatively few employees take advantage of this provision, according to Willis Towers Watson.
Adult children
Children of legal age can be covered up to the age of 26 by their parents’ insurance, even if they are married or do not live with the parents.
âThis gives the child eligibility for the HSA,â Durso said. “They can open their own HSA and contribute to it, as long as they are not subject to employee tax.”
For example, he said, if it’s a family health plan, that adult child could open up and contribute up to the HSA’s maximum of $ 7,300 (for 2022) for the family coverage.
Non-medical expenses
Since you can leave your HSA funds in your account for as long as you want, a long-term savings strategy is to pay cash for routine medical expenses instead of using your HSA.
Then later, when you face a large expense – for example, tuition, travel, down payment on a house – you can withdraw the amount you paid out of pocket earlier for qualifying medical expenses.
âJust keep your receipts and you can get your money back at any time in the future,â Durso said. “And that withdrawal would be totally tax free because it would pay for the eligible medical expenses.”
Also be aware that personal protective equipment used to prevent Covid – masks, hand sanitizer and others – are now considered an eligible expense.
Who can use HSA money?
The money in your account can be used for qualified health care expenses for yourself, of course, but also for anyone who is tax dependent.
âIt doesn’t have to be someone who is part of your high deductible health plan,â Durso said. “For example, your spouse may be covered by their own employer, but you can still use the funds for their expenses.”
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