How Health Savings Accounts Can Help You Maximize Your Tax Savings

Health Savings Accounts (HSAs) offer a triple tax benefit: contributions are tax-deductible, interest and investment gains are tax-free, and withdrawals for qualified medical expenses are tax-free. With the rising cost of healthcare, HSAs are becoming increasingly popular among those who want to save on taxes and prepare for medical expenses in the future.

Unlike flexible spending accounts (FSAs), HSAs allow for contributions to roll over from year to year, and can even be invested for long-term growth. To be eligible for an HSA, according to an article published by USA Today on March 26, 2023, you must be enrolled in a high-deductible health plan (HDHP).

While HSAs offer significant tax benefits, they are often underutilized. In 2021, only 23% of eligible individuals contributed to an HSA, according to the Employee Benefit Research Institute. One reason for this may be a lack of understanding about how HSAs work and their potential benefits.

In addition to tax savings, HSAs can also serve as a retirement savings tool, as funds can be withdrawn penalty-free for non-medical expenses after age 65. However, it’s important to note that withdrawals for non-medical expenses before age 65 are subject to a penalty.