“Saving.” To many of us this is something we think about only in the theoretical sense. We may think: “If only there would be a savings plan that is simple to set up, can be fully automated, is tax deductible and can be accessed easily should the need arise, then I could turn saving into a reality.”
Enter the HSA plan. The HSA plan allows for pre-tax contributions that are exempt from both income and FICA (Social Security and Medicare) taxes. It is easy to set up, can be built into your paycheck and is always accessible for withdrawals. Because of the large amount of money that can be added to these plans (up to $6,900 in 2018), there is often more funds than are required for immediate medical requirements. These funds can be invested or just saved for future use.
One of the greatest potential benefits of the HSA is the ability to invest within the plan, and avoid all taxation on the growth of the investment. This is in essence a double tax benefit. There is a tax deduction for putting money into the HSA, and there is no taxation for taking it out despite the growth inside the plan. This benefit is reserved for monies that are withdrawn for qualifying medical purposes.
One often overlooked benefit of the HSA is the ability to fund Medicare insurance fees. While most people are eligible for free Medicare Part A coverage, there are significant fees for Medicare Parts B and D. These fees are sometimes overlooked as they are deducted directly from a retiree’s Social Security check. Although, the Medicare fees are technically tax deductible, very few retirees meet the threshold requirements for such deductions. By saving money in an HSA for several years before retirement, the accumulated funds can be used to pay for these fees – completely tax free!