May 16, 2016

DON'T TAX WHAT YOU DO WANT:

The Triple Tax Benefit of Health Savings Accounts : The tax advantages are appealing, but HSAs are also a way to save for health care in retirement (Kate Stalter, May 16, 2016, US News)

An HSA allows account owners to pay for current health care expenses and save for those in the future. Its first advantage is that contributions are tax-deductible, or if made through a payroll deduction, they are pretax. Second, the interest earned is tax-free. Third, account owners may make tax-free withdrawals for qualified medical expenses.

Qualified expenses include most services provided by licensed health providers, as well as diagnostic devices and prescriptions. They even include acupuncture and substance-abuse treatment.

Unlike health care flexible spending accounts, which have a maximum year-to-year carry-over of $500, HSAs have no limit on carry-overs or when the funds may be used. Even if the account is opened through an employer-sponsored program, all money in an HSA belongs to the account owner. Accounts are held with a trustee or custodian, which may be a bank, credit union, insurance company or brokerage firm.

Although the tax advantages are appealing, advisors say investors shouldn't overlook HSAs' role as vehicles to save for medical expenses in retirement, when health care expenses generally rise.

"When they are discussed, they're thought of as a tax shelter, which is true," says Shelby George, senior vice president of advisor services at Manning & Napier, a Fairport, New York, investment manager.

"There's no other vehicle under the tax code that has the kind of preferential treatment that health savings accounts have. But it's a way for those who are not focused on tax-shelter opportunities to put the money aside as well," she adds.

HSAs were established under the Medicare Modernization Act of 2003 and are available to people covered by high-deductible health plans.

Thanks W!

Posted by at May 16, 2016 1:19 PM

  

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