Many people don’t know or overlook one of the most tax-saving investments they can make.
You don’t have to be concerned if you think I might have a rogue cryptocurrency or robo account. A regular health savings account (HSA) is the best option for every millennial.
HSA Benefits That You May Not Be Using
The HSA is a tax shelter that may be as powerful as any other in the United States. An HSA is not available to everyone. Let’s start with the basics. We will then look at how an HSA strategy can help you increase your savings.
What is an HSA?
An HSA allows you to set aside pre-tax money to pay qualified medical expenses. You can invest your HSA savings and receive tax-deferred growth. The best part is that withdrawals are tax-free when used to pay for qualified medical expenses. The HSA’s unique triple-tax benefit is unmatched and allows individuals to use their income for personal purposes without having to pay taxes. *
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This is a big deal. Many tax-advantaged savings programs give you both a tax break now and a tax break later. An HSA allows you to have both.
Not everyone can contribute. An HSA is only available to high-deductible health plans (HDHPs), as per the IRS. Individuals must have a minimum $1,400 deductible on their health plans and a maximum out-of-pocket of $7,050 to be eligible for an HSA in 2022. A family health plan must have at least a $2,800 deductible and a maximum out-of-pocket of $14,100. These requirements aren’t particularly strict, and many people will be eligible.
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What is the Secret to Their Success?
You can fund an HSA if you meet the eligibility criteria. You can open an HSA on your own if your employer doesn’t offer one. There are many options. Even If You Already Have Medicare, Don’t You Dare Skip Open Enrollment
Next, let’s consider the contribution limits. Because tax benefits are so strong, the IRS places strict limits on how much you can contribute. Individuals can contribute as much as $3,650 per annum, while families can contribute $7,000. You can also add $1,000 to your “catch-up” contributions if you are 55 years old or older.
How to “Supercharge” an HSA?
Between 6% and 7 percent of health costs are on the rise. The average millennial feels confident and doesn’t worry about future health care costs. These costs will eventually be a problem, but time is not going to stop.
To take advantage of these tax benefits, you will need to use HSA funds to cover some medical expenses. For example, you could use your HSA-linked debit cards to pay your $20 copay when you go to the doctor.
The bottom line
This assumes you have the cashflow and financial resources to use a strategy such as this. Unfortunately, many millennials don’t. Record levels of student debt, record high home prices, and exorbitant costs to start a family, as well as the rising cost of raising children, are all signs that student debt is on the rise.
Even if you are unable to max out this account or use this strategy at its full potential, I urge you to do something. Keep researching, start saving and prepare yourself for financial security and freedom.
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