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
When you contribute to your HSA through workplace payroll deductions, you are saving money on a pre-tax basis. This simply means that the dollars you put into your account are not counted as taxable income. Because you avoid these upfront taxes, you get to keep more of your money.This can give you nearly 25% more spending power to use for your medical bills.
2. Tax-Free Earnings
The second tax benefit is the way your money grows inside the account. Any interest or investment earnings you build up over time are completely tax-free. Your savings can sit in the account and grow steadily year after year. This process boosts your total cash-on-hand without forcing you to pay taxes on that growth, even with a modest rate of return.
3. Tax-Free Withdrawals
With traditional retirement accounts like a 401(k) or an IRA, the government expects you to pay taxes when you take your money out. But HSAs do not work that way. As long as you use your HSA funds to pay for qualified medical expenses, your withdrawals are never taxed. You get to take the money out completely tax-free.
Using an HSA for your family’s healthcare expenses brings excellent tax rewards. Even though the government sets strict limits on how much you can contribute each year, it is smart to max out your account. Doing this allows you to save the most money possible on your taxes