Health Savings accounts (HSA) are one of the most-tax advantaged accounts that the IRS recognizes. HSAs have triple-tax advantages that other programs do not have. In order to have an HSA account you must meet certain criteria.

  1.   You must be enrolled in a high-deductible health plan (HDHP).
  2.   Enrollment in Medicare is not permitted.
  3.   You cannot be claimed as a dependent on someone else’s tax return.



Tax free contributions into HSA. 

One key tax benefit of Health Savings Accounts (HSAs) is the tax-free nature of contributions. If you have an HSA through your employer, you can make pre-tax contributions. Each dollar you contribute from your paycheck goes straight into your account without being subject to any withholding tax. 

Added bonus, you can take the HSA tax deduction even if you are taking the standard deduction and not itemizing. HSA deductions appear as a separate line item on your individual tax return (Form 1040); therefore, you can take advantage of it regardless of whether you itemize or claim standard deduction. 

Tax-free growth in an HSA

Another tax advantage of HSAs lies in the tax-free growth of investments made within the account. Account holders can grow their money through interest and through investing.

Best of all, funds within your HSA roll over annually. There is no obligation to use them, enabling you to capitalize on compound interest and growth while consistently contributing funds and enjoying the associated tax benefits each year.

Tax-free distributions from an HSA

 The third tax advantage of HSAs is that when you withdraw funds out to pay for medical expenses those funds are tax free as well. You can pay for a wide range of expenses. Examples include expenses such as those up to your annual deductible if you have an HDHP, co-pays, dental care, vision care, coinsurance, and even over-the-counter medications. For a comprehensive list of all eligible medical expenses, refer to IRS Publication 502, which provides detailed information.



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