The Triple Tax Benefits of HSAs

What is all the buzz about Health Savings Accounts? You may have heard about what an HSA can potentially offer: a pool of tax-exempt dollars for health care, a path to tax savings, even a possible source of retirement income after age 65. You may want to look at this option if you are eligible.

One of the first requirements to fund an HSA is you must enroll in a high-deductible health plan (HDHP). You fund an HSA with tax-free contributions. Some employers will even provide a matching contribution on your behalf.

HSAs offer you three potential opportunities for tax savings. Your account contributions are tax deductible, the earnings in your account grow tax deferred, and you can withdraw funds from your HSA, tax free, as long as they are used to pay for qualified health care expenses, such as deductibles, co-payments, and hospitalization costs. HSA funds may not be used to pay health insurance premiums.

HSA Tax Benefits. A large draw for many are the tax benefits inherent to HSAs:

  • Contributions through an employer are always pretax
  • You can invest the funds after your account balance reaches a certain level
  • Distributions for qualified health expenses aren’t taxable

Another useful benefit of HSAs is that can be used to pay Medicare premiums (other than premiums for a Medicare supplemental policy, such as Medigap) or extended-care insurance premiums. No Required Minimum Distributions (RMDs) are ever required of HSA owners. Additionally, unlike a Flexible Spending Account (FSA), which is funded with pretax dollars but must be used by a specific deadline, HSA contributions can remain in your account to be used for future medical bills at any time. In short, this means there is no “use it or lose it” penalty. 

Why is an HSA less attractive for some people? The first thing to mention is the related high-deductible health plan. When you enroll in one of these plans, you agree to pay all (or nearly all) of the cost of medicines, hospital stays, and doctor and dentist visits out of your pocket until that high insurance deductible is reached.

Keep in mind that if you spend your HSA funds for non-qualified expenses before age 65, you may be required to pay ordinary income tax as well as a 20% penalty. After age 65, you may be required to pay ordinary income taxes on HSA funds used for non-qualified expenses. HSA contributions are exempt from federal income tax; however, they are not exempt from state taxes in certain states.

If you are covered under an HDHP and not yet taking advantage of the tax benefits of an HSA, contact us for help deciding if this is an available option for you. 

Spiritual Application

While it’s no mystery that savings in taxes is a benefit everyone wants to take advantage of, there is a greater depth to this discussion than simply talking about tax savings. The Bible discusses the context of prosperity on many occasions, specifically our health. In 3 John 1:2(NKJV) states, “Beloved, I pray that you may prosper in all things and be in health, just as your soul prospers.” It is important we understand that prosperity doesn’t just apply to our finances. A truly prosperous life involves every aspect of our lives, including our physical bodies. If we want to see God’s best in our lives, we should be taking care of our bodies so that we can carry out the tasks that God wants us to accomplish for him. To that end, we need to be aware of how we are treating our bodies and if that is contributing to our overall physical prosperity. 

Further, sometimes it is so easy to get caught up in the “getting ahead” mentality of this world that we can sacrifice our own well-being. Mark 8:36(NLT) says, “And what do you benefit if you gain the whole world but lose your own soul?” Many times we can disguise our hustling and say things like “it’s best for the kids”, or “I’ll slow down once I get to the next level”, and so on. However, we never guaranteed our next day and we might not have another opportunity to prioritize our physical health. Depending on your situation, you may be fortunate enough to be able to allocate some of your finances towards better health. If that’s you, I hope you make the choice to do so. 

Evergreen Financial Group is a Fee-Only Financial Planning and Investment Firm located in Billings, MT serving clients in Montana, Wyoming, Utah, and virtually across the country. Evergreen Financial Group specializes in working with Christian families, including Young Professionals, Current and Future Retirees and Church Staff Members. 

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This content is developed from sources believed to be providing accurate information. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Evergreen Financial Group, LLC is a registered investment advisor offering advisory services in Montana and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. This communication is for informational purposes only and is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon as the sole factor in an investment making decision. All opinions and estimates constitute Evergreen Financial Group’s judgement as of the date of this communication and are subject to change without notice. Evergreen Financial Group does not warrant that the information will be free from error. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk.