A Health Savings Account (HSA) is a tax-advantaged savings account for current and/or future medical expenses. Unlike a flex spending account, it is not "use it or lose it". HSAs are self-directed savings vehicles that allow you to cover medical expenses that almost everyone encounters eventually. The list of qualified medical expenses (QMEs) is very comprehensive and includes your deductible. You can grow your account with the same alternative IRA investments you've come to know and trust (real estate, private lending, etc.) NEVER PAY TAXES on a sizable portion of your income through tax-deferred contributions and tax-free distributions.
As with a Traditional IRA, up to your full HSA contribution amount may be deducted from your income for tax purposes. You must be enrolled in a high-deductible health plan (HDHP) to make HSA contributions.
As with a Roth IRA, distributions can be completely tax-free. To qualify, HSA withdrawals must cover QMEs or reimburse you for a QME you personally covered at a prior time.
Unlike PPOs and HMOs, HDHPs charge lower monthly or annual premiums but come with higher deductibles. This means plan holders would have to pay more out of pocket for medical expenses before insurance kicks in to cover the rest. Per the IRS, insurance plans qualify as HDHPs if they feature a minimum deductible of $1,400 and a maximum deductible of $6,900 for individuals. Deductibles on family plans must fall within the $2,800 minimum and the $13,800 maximum.
Higher deductibles may not seem appealing, but always remember that deductibles are qualified medical expenses under current HSA rules. This allows you to pay lower monthly premiums for your HDHP, defer out-of-pocket expenses to your HSA, and pay zero taxes along the way!
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