3 Ways An HSA Can Help When Tax Time Rolls Around

A Health Savings Account (HSA) is a great tool to help you pay for current health care expenses, or save for those in the future. It’s a tax-advantaged account which you can deduct from your payroll before tax. You can use an HSA to pay for most services provided by licensed healthcare providers, as well as diagnostic devices and prescriptions.

Let’s learn more about how contributing to an HSA can help you when tax time rolls around, and get in touch with our team to learn more.

1. Pre-Tax Contributions

Contributing to your HSA through payroll deductions allows you to put money away for health needs pre-tax. This means every dollar you contribute from your paycheck isn’t taxed. This can give you nearly 25% more cash to use for medical expenses at any point.

2. Tax-Free Earnings

The next piece of the tax advantage puzzle is that your interest earned on the account is tax-free. Earning can grow nicely, boosting your cash-on-hand even with a relatively low rate of return.

3. Tax-Free Withdrawals

The government expects you to pay taxes on any money you withdraw from a 401(k) or IRA. That’s not how HSAs work though. When you use money from your HSA to pay for qualified medical expenses, you’re not taxed on the money you withdraw.

Investing in an HSA for your medical expenses has a number of great tax benefits. While your HSA contributions are limited annually, it’s to your advantage to max it out every year to save yourself the most money.