Why I Love Health Savings Accounts
I often get asked by clients what they should do to lower their tax obligation. While there are a variety of strategies that can be used depending on the situation, one of my favorite recommendations is a health savings account (HSA). The reason why I recommend these accounts is because HSAs give a tax deduction when contributed to. The limit for 2020 is $3,500 for individuals and $7,000 for those with family plans. Often when I am talking to a business owner, they prefer to make the contributions for employees which give the business a deduction while also avoiding payroll taxes for the employee.
Health savings accounts have characteristics like a qualified retirement plan (401k, 403b) where the investments in the account grow tax-free. The number one cost in retirement is medical costs and health savings accounts help reduce this burden with distributions from the account being tax-free if they are used to cover medical expenses.