With healthcare costs rising rapidly, finding tax-preferred ways to pay for medical expenses can result in substantial savings, both now and into retirement. HSAs offer a trifecta of tax advantages:

• Contributions are tax-deductible.
• Earnings on account balances grow tax-free.
• Distributions are tax-free for qualified purchases.

Considering that nearly everyone will incur healthcare expenses at some point, leveraging these tax advantages makes sound financial sense.

Due to the significant tax benefits associated with HSAs, the IRS imposes annual contribution limits. For 2023, individuals can contribute up to $3,850, while families can deposit up to $7,750. Individuals aged 55 or older can make an additional catch-up contribution of $1,000 per year.

However, there's a requirement: to contribute to an HSA, you must be enrolled in a high-deductible health plan (HDHP) that meets IRS criteria. For 2023, a qualifying HDHP must have a deductible of at least $1,500 for individuals or $3,000 for families, with total out-of-pocket maximums not exceeding $7,500 for individuals or $15,000 for families.

HSAs are valuable tools for covering current medical expenses or saving for future healthcare needs, including retirement. Regardless of when you decide to use your HSA funds, it's crucial to retain all receipts for medical expenses as documentation is required for distributions.

For those who spend regularly, selecting an HSA with a checking account and debit card can simplify tracking qualifying purchases. Debit cards automatically record medical expenses, although receipts are necessary for verification.

For individuals saving for future medical expenses, exploring HSAs with investment options can be advantageous. Since HSAs offer tax-deferred growth and tax-free distributions, investments within the account are shielded from capital gains or income tax.

Whether you obtain an HDHP through your employer or independently, you have the flexibility to select the HSA provider that best suits your needs. We're here to assist you in evaluating your options and selecting the optimal plan and HSA to maximize your healthcare savings and investment returns. If you have any inquiries, don't hesitate to reach out to our office today.