Question of the Week
Can I still contribute to a Health Savings Account?
Hello, hello, hello! Happy Five-Minute Friday. This week I’ve had a few clients ask about contributing to their Health Savings Account (HSA).
The HSA is one of my favorite savings vehicles. It’s one of few options that can still save you money on your 2019 taxes — right up to April 15, 2020. When I pointed this out to one of my clients, he responded, “I still don’t know how I spend money and get more money, but as long as I’m not wearing an orange jumper at the end of this, sounds good to me!”
Definitely no orange jumpers here. Just good old tax strategy. So, let’s jump into how you can take advantage of an HSA.
What is an HSA?
An HSA combines the features of a tax-advantaged savings account with a high-deductible insurance plan. In fact, it’s the only savings vehicle that offers triple tax-savings.
- The contributions are tax-deductible
- The money grows in your account tax free
- Withdrawals used to pay qualified medical expenses are tax-free.
Qualified medical expenses can include your deductible, co-payments for doctor’s visits and prescriptions, as well as dental and eye care.
You can also reimburse yourself for the money that Social Security withholds from your benefits to pay for Medicare Part B, Part D or Medicare Advantage (but not medigap) premiums, or for a portion of your long-term-care insurance premiums.
For 2019, a high-deductible health plan (HDHP) requires a minimum deductible of $1,350 for an individual and $2,700 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $6,750 for an individual and $13,500 for a family. You can make pretax or tax-deductible contributions in your account up to $3,500 a year if you have individual coverage or $7,000 a year for family coverage. Those age 55 and older can save an additional $1,000 per year.
If you max out your contribution to an HSA, you can save hundreds or even thousands of dollars on your taxes. For example, if you’re a family in Illinois (5% state income tax) that is in the 28% marginal federal tax bracket, and you fully fund your HSA, you save $2,310 in income tax. Not only do you save in taxes, most high deductible plans also offer lower premiums.
What if my employer doesn’t offer an HSA or I’m self-employed?
Yes! You can still open and contribute to an HSA even if your employer doesn’t offer one or you’re self-employed. In order to qualify, you still have to have a high-deductible plan AND meet the following criteria:
- You must be covered under a HDHP, on the first day of the month
- You have no other health insurance coverage (excluding vision, dental, disability, accident, long-term care) and are not covered by another plan (i.e. spouse’s employer plan).
- You are not enrolled in Medicare.
- You cannot be claimed as a dependent on someone else’s tax return.
Also keep in mind that your HSA contributions can be made until the tax filing deadline (April 15th). To deduct them on your return you file Form 8889. The deduction will appear on line 12 of your Schedule 1.
Awesome! How can I get one?
There are many places to open an HSA. As with all investing — make sure to focus on those things you can control — fees (administrative, investment, etc.), diversification for investing and how much you contribute to the account. Here’s a list from Morningstar of the best HSA options for spending and investing in 2019.
Quote of the Week
“Don’t sit down and wait for the opportunities to come. Get up and make them.” – Madam C.J. Walker
Task of the Week
Do you qualify for an HSA but don’t have one yet? You still have about two months to get one and save on your 2019 taxes. Get to it!