A Health Savings Account (HSA) offers 3 tax benefits, often referred to as “triple tax benefits.”
If you have a high deductible health plan and you are eligible, here is how the triple tax advantage works:
1. Pre-tax contributions.
Contributions to your HSA are on a pre-tax basis, meaning all the money you contribute is money you don’t have to pay taxes on. For example, imagine your family decides to put $6,900 towards your HSA.
In this hypothetical example, you would no longer have to pay income tax on that $6,900 contribution, as you normally would have. Hence, it is a “pre-tax” contribution!
2. Tax-free earnings.
With an HSA, your money can accumulate, tax-free. Put simply, any interest you earn over time won’t be taxed. You can see why that’s an incentive for many people to only use their HSA when they really need it, such as later in life.
3. Tax-free withdrawals.
When you think of other accounts that give you tax-advantages—such as a traditional 401(k) or an IRA—you end up paying taxes when you make withdrawals. In other words, “one day” in the future, you will have to pay taxes on those investments when it comes time to take money out.
But with an HSA, you reap the benefit of tax-free withdrawals. So not only do you avoid paying taxes when you contribute money to the account, but you’re not taxed on the money you withdraw, either.
Triple Benefits to You
With pre-tax contributions, tax-free earnings over time, and tax-free withdrawals, you can start to see why HSAs are so advantageous because they give you the ability to save and minimize taxes! They also help you set aside money for healthcare dollars, whether you use it now, or in the future.
Call Orcutt & Company for More Tax Assistance & Tax Strategy
Want help in deciding how much to put into your HSA? Or are you seeking tax guidance related to investment decision-making? Give us a call at (513) 576-1989.