Caleb Brown

Health Savings Accounts (HSAs) have grown tremendously in the last 10 years.  The basic use is to set aside money for qualified medical expenses in a separate savings account, and then use the funds as needed.  You can read all about HSAs here.  What I want to touch on is some of the major benefits and some strategies for people who are concerned about future healthcare costs.  I’ll start with the tax advantages:

1. Pre-tax contributions, currently $6,750 Family & $3,350 Single w/$1000 catch-up contributions if over 55 years old (avoids Federal & State taxes*)

2. Avoids FICA taxes (Social Security & Medicare if you contribute through your payroll)

3. Withdrawals are tax-free if used for qualified medical expenses

4. Contributions grow tax deferred

5. No required minimum distributions (unlike IRAs)

HSAs are like an IRA in that you can pick where you want to do business.  There are many HSAs that allow you to invest the funds (Stocks, ETFs, Mutual Funds).  If you could get a respectable return on the investment, this could be a great planning opportunity, especially for younger individuals.  If the HSA owner can cash flow their medical expenses (easier said than done) and not use the HSA account till later in life, you will really see the effects of the tax deferral and compound interest.  Alternatively, you can use the account as a pass through, and as those medical bills occur you have a bucket of money set aside to handle those expenses tax-free.

This could also be another retirement bucket for those who may not need as much for healthcare costs.  If you withdrawal from the HSA past age 65 for reasons other than qualified medical expenses, you will pay taxes but no penalties.  This would be similar to IRA withdrawals.  I can’t think of an account with this many tax advantages.  See your Foster Group advisor for additional conversation around the value of Health Savings Accounts.

An HSA would be one way to combat the unknowns of rising healthcare costs.  Another within your power is to handle the basics and invest in diet and exercise.  There is no way to know when illness, sickness, and injury may strike, but you do have some control over your choices.  So be wise and control the controllable.

*Except in Alabama, California, and New Jersey

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