The One Employee Benefit That Executives Should Not Overlook – Health Savings Accounts
Health Savings Accounts (HSA)- Treats Not Tricks
We’re approaching Halloween and employee benefit enrollment season is just around the corner. If you’re a high wage-earning employee, you may be asked to choose among a dozen benefits to adequately cover you and your family for the next year. Most people that I know consider this process to be scary, frightful, and full of tricks. However, for the right person, there is one benefit that provides multiple treats for now and the future and should not be dismissed.
Hi, I’m Chuck Lewandowski, CERTIFIED FINANCIAL PLANNER® professional and I would like to talk about the often confused, but potentially lucrative, Health Savings Account or HSA.
I recently helped two executives build financial plans to enable an early retirement. In both cases, the executives weren’t clear on how the HSA worked or the benefits that it provided.
“Triple Tax Free” Benefits
The Health Savings Account allows certain wage earners to set aside funds to be used for qualified health care expenses on a tax preferred basis. In 2024, a family can contribute $8300 to this account. You can add $1000 more if you’re over age 55. So, a married couple over 55 can shelter $13300 in their HSA account.
Here’s the treats- These funds are sometimes called” Triple Tax Free”.
- They reduce your taxable income when you make a contribution
- Funds in the account may be invested and any earnings on the funds aren’t taxed
- There is no tax when funds are withdrawn for qualified expenses.
Insurance Requirements
To be eligible for an HSA, you must be enrolled in a high deductible health insurance plan. These plans typically favor healthier individuals so if you need frequent health care services, the high deductible plan may not be a fit for you.
Unlike the similarly sounding FSA or Flex-Spending account, you can carry over any unspent funds into future years. This feature enables you to create an additional tax favored account that you can carry into retirement. Medicare premiums are designated as qualified expenses. So, it’s highly likely that you can use these funds in retirement.
Many custodians will offer a wide variety of investment alternatives in the HSA accounts. You can choose investments that fit your risk level and time horizon.
How to Manage HSA versus 401k Contributions
You may be asking how you should choose between HSA contributions and 401k salary deferrals. Here’s the sequence of contributions that works for most employees.
#1 – If your company provides a match for your 401k, contribute up to that match
#2 – Contribute additional funds up to the HSA max
#3 – Contribute anything left to your 401k
If you’re self-employed, the order may be revised to accommodate certain tax deductions such as the Qualified Business Income deduction. Check with your tax advisor to see what works for you.
The Health Savings Account is just one of the many tax saving opportunities that are available to executives and business owners. If you’re interested in seeing how these benefits affect your situation, please give me a call and Let’s Make a Plan.
Advisory Services offered through Lincoln Investment or Capital Analysts, Registered Investment Advisers. Securities offered through Lincoln Investment, Broker Dealer, Member FINRA/SIPC. www.lincolninvestment.com West Coast Financial Group, Inc. and the above firms are independent, and non-affiliated. Tax services are not offered through, nor supervised by, The Lincoln Investment Companies. The hypothetical example used was for illustrative purposes only, and is not meant to represent the any specific individual. None of the information in this video should be considered as tax advice. You should consult your tax professional for information concerning your individual situation.