Year-Round Health Savings
So many memorable moments can define this time of year. Friends and family gather for the holidays, and kids get to come home from school for winter break. An extra log or two gets thrown on the fire. And there’s usually a wish list for a prosperous time ahead.
Although this next thing may not sound quite as comfy-cozy, a part of that prosperity can be kicked off at year’s end with a little extra attention to financial opportunities. Such as, making a resolution to save money and save on taxes. That’ll warm the heart of anyone.
A Health Savings Account, or HSA, can help.
There’s a tax benefit* because the money contributed to the HSA can be fully deducted from that year’s income.
There’s also a budget benefit when those tax-exempt funds are tucked away in advance; taking the worry out of timing one’s medical care later on.
Plus, there’s a savings benefit because that money is working harder, paying for expenses with pre-tax dollars versus after-tax dollars. And the interest earned on the account is tax-free, too.
Why It Matters1,2
The price of health care is rising. For health insurance that’s purchased privately (not a benefit program, for example), expenditures rose more than eight percent in 2022. That’s just insurance. In addition to that, national health costs overall are projected to rise more than five percent annually over the next eight years. Think anything from dental to decongestants to doctor visits.
About half of U.S. adults say it is already difficult to afford care in general. And about a third say they’ll forego treatment due to the expense.
HSA Defined (it is not use-it-or-lose-it)
An HSA is available to people with high-deductible health plans, also known as HDHP. Some people have an HDHP because while it may have higher out-of-pocket costs, it has a lower premium. To put some perspective on it, a preferred plan, or PPO, can cost about 25 percent more than an HDHP3.
Pre-tax money is contributed to the HSA and then that money can be used to pay for health care expenses without being taxed. That is, the dollar goes further. So, the HSA is a more cost-effective way to offset some medical expenses that insurance may not cover.
If it’s a situation where there is a family HDHP in play, then the HSA can help with medical expenses for the family. Participants tend to earmark the funds for anticipated expenses, such as an upcoming medication regimen, physical therapy visits, or dental work such as braces (to name just a few).
To take advantage, individuals can open an interest-bearing HSA account (through their bank for example) and contribute pre-tax dollars to it before year’s end. That means, the contributions will be noted as such and can be deducted from that year’s income.
It is not a use-it-or-lose-it account. Money set aside for next year can also be used in future years.
Other Qualifications
Participants in an HSA may not be dependents nor Medicare recipients, and there are additional rules regarding U.S. residency, Social Security identification, employer plans, retirement, rollovers, and other details.
As with any tax policy, please consult a tax advisor about the specific qualifications and the deductibility of income. In addition, IRS Publication 502, Medical and Dental Expenses has more information regarding the types of qualifying expenses an HSA will cover. And Publication 969 has more about HSAs in general.
Year-Long Goals and Lifelong Goals
A Health Savings Account helps Pinnacle Bank customers save and budget while also taking advantage of a tax break. And although it’s a timely consideration for tax season, it can deliver happy, healthy benefits to individuals and families all year long.
We have more information about interest-earning HSA Accounts and a short HSA Video available to get you started. It’s part of our commitment to helping you focus on long-term financial goals, and today is a great time to ask us about it.
*Consult a tax advisor regarding HSA eligibility, qualifications, and the deductibility of income.
1National Health Expenditure Projections 2021-2030, Forecast Summary, https://www.cms.gov/files/document/nhe-projections-forecast-summary.pdf, data pulled Oct 28, 2022.
2A. Montero , A. Kearney, M. Brodie, L. Hamel, “Americans’ Challenges with Health Care Costs”, https://www.kff.org/health-costs/issue-brief/americans-challenges-with-health-care-costs/, Jul 14, 2022.
3K. Hagen, “HDHP vs. PPO: Which Is the Right Choice for You?”, https://www.fool.com/retirement/plans/hsa/hdhp-vs-ppo/, Jun 30, 2022.