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Ep #064: The Triple Tax-Free Benefits of the HSA (Health Savings Account)
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In this timely episode, as we approach the end of the year and step into open enrollment season, we unpack the advantages of Health Savings Accounts (HSAs) for both business owners and employees. HSAs offer triple tax-free benefits, including pre-tax contributions, tax-free growth, and tax-free distributions for qualified medical expenses, making them a potent tool for long-term financial planning.
Eligibility for HSAs requires enrollment in a high-deductible health plan, with specific deductible thresholds and contribution limits for 2024 outlined for individual and family plans. While not suitable for everyone due to the high deductible requirement, HSAs present significant tax savings and investment growth opportunities for those who participate.
This episode details how contributions through payroll can maximize benefits by also avoiding employment taxes. For those without access to an employer-sponsored HSA, opening an individual HSA account still offers tax-deductible contributions and the same growth and distribution advantages.
Listeners will learn about the comprehensive list of qualified medical expenses covered by HSAs, the distribution guidelines to avoid taxes and penalties, and the unique benefits for individuals over 65, including the absence of Required Minimum Distributions (RMDs) and the ability to use funds for non-medical expenses without penalties.
The episode also compares HSAs to Flexible Spending Accounts (FSAs), highlighting the "no use-it-or-lose-it" feature of HSAs, which allows funds to roll over and accumulate year after year. This makes HSAs an excellent vehicle for funding future medical bills and supplementing retirement income.
Resources:
Qualified Medical Expenses One Pager
Medical & Dental Expenses: IRS Publication 502
HSAs & Other Health Plans: IRS Publication 969
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