What Tax Advantages Does a Health Savings Account (HSA) Offer?

Litchfield, NH Resident Has Questions

The money contributed to a Health Savings Account (HSA) is 100% tax-deductible. This means that any
contributions will lower your taxable income. The interest earned on money in an HSA is 100% tax-
deferred. This means the money in the account can continue to grow without being taxed. Withdrawals
that are used toward qualified medical expenses are 100% tax-free. These expenses include
deductibles, copays, prescriptions, vision, and dental costs.

A Litchfield resident was considering opening an HSA for her family’s medical expenses. Curious if the
tax advantages would make it worthwhile, she contacted the team at Merrimack Tax Associates.

Contribution Limitations to a Health Savings Account

With such a tremendous tax-advantage, there are rules set by the IRS for HSAs. Annual contributions
are limited, but any unused money can be rolled over from year to year. This makes an HSA an excellent
investment for your retirement to offset any medical expenses that may arise in the future. The
contribution limit for 2023 is $3,850 for individuals and $7,750 for families. An additional $1,000 is
allowed for those over the age of 55. Some employers will offer the added benefit of contributing to an
HSA for their employees.

What Medical Expenses Can Be Paid Using an HSA?

Most of your out-of-pocket medical expenses can be paid using the money in a Health Savings Account.
This includes any deductibles incurred, doctor copays, cost of prescriptions, and expenses for vision and
dental care. You may carry money over in your HSA from one calendar to the next. During this time, the
money will earn interest without being subjected to taxes if it is ultimately used to pay for medical
expenses.

More and more people are using an HSA as another investment for their retirement, assuming that you
will incur more medical expenses as you get older. By carrying money in your HSA, you can save money
for these qualified expenses without having to pay taxes on these contributions or their growth. This is
a great addition to your other retirement savings accounts.

The Litchfield resident was pleased to learn how a Health Savings Account could save her family money
on taxes now, while also helping her to plan for the future. She has already begun making regular
contributions to an HSA.