You may know about the tax benefits that separate health savings accounts (HSAs) from other self-directed savings vehicles. Are you making the most of those benefits? Let’s examine five tips for HSA holders that investors may want to think about.
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Five Tips for HSA Holders
Invest your HSA
Your HSA can invest in anything a self-directed IRA or 401(k) can, from publicly-traded securities like stocks or mutual funds to alternative investment options like real estate or precious metals. You may therefore enjoy the flexibility of self-directed retirement investing while garnering the additional tax advantages of an HSA.
Understand Qualified Medical Expenses
HSAs offer the unique opportunity to make tax-deferred contributions and tax-free distributions. Withdrawals must cover qualified medical expenses (QMEs) or reimburse the account holder for QMEs previously paid to qualify for tax-free benefits. The list of QMEs is extensive, but a non-qualified distribution from an HSA can have tax and penalty implications. We encourage you to review IRS Publications 969 and 502 for detailed information about QMEs.
Be Strategic With Your Distributions
As with any investment vehicle, your HSA has the greatest opportunity to grow if you limit your distributions. Instead of covering copays, prescriptions, or other relatively cheap QMEs with your HSA, consider paying for them personally. This allows your HSA to grow and remain available for larger expenses that may arise down the road. If you intend to cover a QME by taking a distribution, you may delay the distribution until you see fit. You’re under no obligation to execute an HSA distribution immediately after an expense is assessed.
Making your maximum allowable HSA contributions can boost your plan’s earning potential and allow you to deduct up to the full contribution amount from your taxes. Many employers are beginning to offer HSAs as alternatives to PPO plans, so be sure to review your options and select an avenue that will maximize employer contributions as well.
Become a Better Healthcare Consumer
Comparing medical services and their costs can help you get the biggest bang for your HSA buck. Be sure to take advantage of free preventative care services, review your healthcare habits, and implement positive lifestyle changes whenever possible to minimize the use of your HSA dollars until absolutely necessary.