Don’t read this if you like paying extra tax or if you like using your vacation money on medical expenses. Ok, now that those people are gone . . .let’s get rational in here.
HSA Accounts. Health Savings Accounts for long. These are accounts created by your health insurance provider that allow you to contribute pre-tax dollars from your paycheck to an interest bearing account to be used for medical expenses.
- You can contribute $3,400.00 as an individual in 2017
- You can contribute $6,750.00 as a couple in 2017
Any money you put in a HSA account grows tax-free and compounds year to year like any other savings account. This money is also pre-social security tax. Need the money for medical expenses? Cool, either pay with your HSA debit card or pay with your own credit card (earns the points) and write yourself a check from your HSA account for reimbursement.
What can you use your HSA money for?
- Eligible medical expenses, including most medical, dental and vision services and prescription drugs. This includes pregnancy tests, thermometers, prescription sunglasses, etc.
- Health insurance premiums under COBRA continuation coverage.
- Health insurance premiums if you’re getting unemployment compensation.
- Medicare Part A or Part B premiums if you’re enrolled in Medicare.
- Your qualified long-term care insurance premiums.
Anne Tergesen of the Wall Street Journal called the HSA plan a “triple- benefit” in that you get pre-tax savings, tax-free growth during the life of the account, and tax-free withdrawals. If you have any medical expenses at all during the year, this type of plan is a must.
Ok, so far, so good. Here is the most rational way to use these accounts. Let’s say you don’t have any large medical expenses for several decades. Keep receipts for any medical expenses you have (THIS IS KEY). The HSA account grows in value until you retire at age 65. At that point, you have $100,000.00 or more in the account (all tax-free). You can now withdraw money from the HSA account for reimbursement for past medical expenses penalty-free. Theoretically, you could buy a Corvette with your HSA account as long as the Corvette is equal in value to the money you’ve spent on qualified medical expenses in the last few decades.
Max out your HSA if you have the option. Let it grow tax-free. Reap the benefits when you use it. Let me ride in your Corvette.
Stay Rational
B&T