If you are enrolled in a high deductible health plan (HDHP) through work or on your own, funding a Health Savings Account (HSA) could be considered a top priority.
First of all, contributions to your HSA are tax deductible “above-the-line” reducing adjusted gross income (AGI), regardless of your tax filing status or income level. Unlike IRA contributions, you do not even need to have earned income to receive a tax deduction for an HSA contribution! For example, if you were 58 and had only passive income sources (e.g. portfolio or rental income) and your family was in a HDHP, you could make a $8,000 contribution in 2019 and get the full tax deduction.
There are no income limits or phaseouts, so even high earners can get these tax deduction benefits. What’s more, you could invest the contribution dollars into stocks and bonds and any investment gains are tax-free if used for qualified medical expenses.
Also, with a HSA, there is no “use it or lose it” rule like other health accounts; the money belongs to you. HSA money can also be rolled over to a provider with better investment choices without triggering taxes. Once you enroll in Medicare, HSA contributions are not permitted, but account assets can continue to grow tax-free.
For those retiring early, an HSA gets you:
You would want to review your HSA contribution eligibility given the HDHP you are currently enrolled in or considering. Dowling & Yahnke Wealth Advisors can also help you better understand the various HSA contribution limits each tax year based on your filing status and age. We suggest you consider asking your advisor about this powerful savings tool with a great tax-deductible advantage.