Scott Horstman, Product Development Manager | October 15, 2018
To take advantage of a health savings account (HSA), you must first participate in a qualifying high deductible health plan (HDHP) and meet certain HSA eligibility requirements. The Federal Employees Health Benefits (FEHB) program includes some great HDHP plans that offer an HSA option.
There are more than 21 million HSA participants nationwide who are able to access the unique triple tax advantages an HSA provides. First, similar to an IRA, contributions to an HSA aren’t included in your taxable income. Second, investment earnings in the HSA grow tax-deferred. Third, and this is where an HSA has an advantage over a traditional IRA, is that money can be withdrawn tax-free if used for qualified medical expenses.
Many financial planners recommend HSAs to clients who qualifyas a core component of an overall financial plan. Reason being, that beginning at age 65, your HSA funds can be used for any reason you choose. Withdrawals for non-medical reasons are taxed similar to other investment accounts such as an IRA.
However, there are limits on contributions. For 2018, (IRS Revenue Procedures 2017-37 and 2018-27) the contribution limit (plan sponsor plus participant) is $3,450 (single) and $6,900 (family). Participants age 55 and over can make “catch up” contributions and add an additional $1,000 above the limits.
Information shared in this article should not be taken as legal or tax advice as HDHPs may not be the best choice for everyone. To help you determine if an HDHP is right for you, consult with a trusted tax or legal adviser and review IRS publications 502 and 969.