Use Your HSA Wisely

January 28, 2020
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The Health Savings Account (HSA) is really the best of three worlds. You get a tax deduction for making the contribution, the money grows tax-deferred, and it is withdrawn tax-free as long as it is used for qualified medical expenses. Because of this, this is often the best place to save after taking advantage of a company match in a 401(k).

However, managing your HSA is very important because of the tremendous benefits. I have met people who consider this part of their retirement savings but constantly dip into it to pay deductibles and co-insurance. In this sense it is really just a little pass-through tax haven. If this is the case for you, I do not consider this part of your retirement savings.


Guidelines to follow

  1. Avoid making withdrawals prior to retirement. Allow it to grow for as long as possible. However, if the alternative is taking on medical debt, use the HSA now.
  2. Use only for medical expenses. If used for expenses other than healthcare, it is subject to taxes. If it is used prior to age 65, there is also a 10% penalty assessed. Once in retirement, don’t wait forever to use it. If you and your spouse die, an HSA is entirely taxable to other beneficiaries.
  3. Keep medical records. You can reimburse yourself for past expenses. If you had a hip surgery at 60 that cost $10,000 that you didn’t reimburse yourself then, you could reimburse yourself at age 70 taxes and penalty free and use the $10,000 for a family vacation.


Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting or tax advice. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified investment, tax or legal advisor. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing.