HSAs are Amazing!

As of Q4 2023, Nevada is a bit of a dichotomy. We have one of the highest unemployment rates nationally, but also one of the highest rates of job creation. Wages continue to go up as companies compete for talent. It has also prompted some employers to revisit existing perks and benefits and increase them to attract and retain more workers.

Some of those benefits may include the following:

• Flexible work hours and days 
• Vacation and paid time off
• Health and life insurance
• Tuition assistance and student loan debt relief 
• More focus on growth and development 
• 401(k) or pension plans
• Mental health assistance
• Fertility treatments 
• HSAs (Health Savings Accounts)

The last one listed above is by far my favorite. What if I told you there was an account that could be used for medical expenses, while allowing you to put away pretax dollars, reducing your taxable income and potential tax liability? What if that account allowed you to pay for eligible medical expenses this year and carry any unused balance forward in perpetuity?

What if that account allowed you to invest in any number of different options? What if I told you that when you turn 65 you would be able to use those monies for ANY expense without paying a penalty and that you would continue to receive the same tax-free withdrawal capability if you paid for qualified medical expenses?

Well, that is the HSA. If you’re young and healthy you have a lot of runway left, so the tax-deferred growth over time can be significant.

Let’s go right to the source, IRS Publication 969 on Health Savings Accounts. Here’s a link: https://www.irs.gov/publications/p969

Let’s take a look at some of the pros and cons of the HSA:

Pros include:

1. You can set up an automatic payroll deduction.
2. It’s pre-tax dollars – it is a tax savings vehicle.
3. In 2024, an individual can contribute up to $4,150, or up to $8,300 for a family plus a $1,000 “catch up contribution” for those 55 or older.
4. Tax-free withdrawals for eligible medical expenses.
5. After some minimum balance hurdles, you may have investment options that could yield higher returns (see con below as well).
6. At 65 years of age, you can withdraw for any expense without penalty.
7. It’s portable – it will remain with you if you change jobs, change insurance, or even retire.

Cons include:

1. The HSA requires that you have a high-deductible insurance plan option with minimum deductibles required. The minimum annual deductible for an individual is $1,500 and for a family, it’s $3,000. The total of your annual deductible plus out-of-pocket expenses (except for out-of-network charges) is $7,500 for an individual and $15,000 for a family.
2. If you withdraw before the age of 65 for non-eligible medical expenses, you will pay a 20% penalty and the withdrawal will be considered taxable income.
3. After 65 years of age, additional contributions can’t be made, even if you are still employed.
4. If you invest your balances in stocks or bonds, you have market risk as in any similar investment.

You have to find what works best for your individual situation. The important thing is that, depending on your stage in life and your individual or family needs, you should look for ways to leverage company-provided benefits like the HSA, FSA (Flexible Savings Account for healthcare expenses), 401(k) match, and insurance.  

Take advantage of the employee-driven job market and if it makes sense for you, use and grow your HSA as a means of reducing your tax liability while also building balances to offset current, near-term or long-term medical costs.

 

 

 

The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank. Nevada State Bank is a division of Zions Bancorporation, N.A. Member FDIC