If you’re suspecting that I’ve got an obscure cryptocurrency or robo account to flaunt … fear not. Every millennial need look no further than an ordinary health savings account (HSA).
The HSA may very well be the most powerful tax shelter, pound-for-pound, in the United States. Unfortunately, not everyone is eligible to contribute to an HSA. Let’s cover the basics and review how you could supercharge your savings with an HSA strategy.
What is an HSA?
An HSA is a savings account that allows you to save pre-tax to pay for qualified medical expenses. Savings within the HSA can be invested, and your investment earnings grow tax deferred. Best of all, when paying for any qualified medical expenses, withdrawals can be made tax-free. The unique triple-tax advantage of the HSA is truly one-of-a-kind and just about the only way individuals can use income for personal use without the IRS touching a single dollar.*
This is no small thing. Most tax-advantaged savings plans give you a take break now OR a tax break later. An HSA gives you both!
Unfortunately, not everyone can contribute. The IRS only allows people with high-deductible health plans (HDHPs) to participate with an HSA. To be eligible in 2022, individuals must have a health plan deductible of at least $1,400, and the out-of-pocket maximum must be below $7,050. A family health plan must have a deductible of at least $2,800, and the out-of-pocket maximum must be below $14,100. These requirements are not particularly high, so many individuals will find themselves eligible.
How Do They Work?
If you meet the criteria to contribute you can start funding an HSA. If your employer does not offer an HSA, you’re allowed to open your own independently. There are many providers to choose from.
Next, consider the contribution limits. The tax benefits are so powerful that the IRS puts strict limits on what you’re allowed to contribute. In 2022, individuals can contribute up to $3,650 per year and families can contribute $7,300 per year. If you’re 55 or older, you can add an additional $1,000 “catch-up” contribution on top.
Remember, your current year contribution counts as a tax deduction. Once funded you can choose among various savings, mutual funds and ETF options to get your money to work.
How to ‘Supercharge’ an HSA
Health costs are inflating between 6% and 7%. The average millennial often feels bulletproof and rarely worries about future health costs. But time remains undefeated, and one day these costs will demand your attention.
Generally, to take advantage of the aforementioned tax benefits, you’ll need to use your HSA funds to pay for some medical expenses. …….