Enrolling in an HSA allows you to reduce your taxable gross income, spend pre-tax dollars for medical care and grow your HSA tax-free. Participation in a health savings account allows you to invest pre-tax dollars to prepare for your healthcare costs in retirement. Although your funds can be used to pay for immediate healthcare expenses tax-free, you can save the money for healthcare expenses later in life. You can continue to contribute year after year and withdrawals (provided you are enrolled in a High Deductible Health Plan) can be made at any point in time. Whether you withdraw the money tomorrow, five years from now, or in retirement, funds used for qualified healthcare expenses are always tax-free when you save your receipt.
Below are examples of your potential savings:
A contribution of $50 a month over 25 years:
| Tax savings
$4,148 |
Balance
$21,876 |
Increase the contribution to $200 a month over 25 years:
| Tax savings
$16,590 |
Balance
$87,502 |
Max. family contribution of $6,650 a year over 25 years:
| Tax savings
$45,968 |
Balance
$249,728 |
*For illustrative purposes only. Savings calculations are based on a federal tax rate of 15%, state tax rate of 5%, and 7.65% FICA. Balance calculations assume an average interest rate of 3%. Actual results may vary.
HSAs Offer a Triple Tax Advantage:
Money goes in tax-free. Most employers offer a payroll deduction through a Section 125 Cafeteria Plan, allowing you to make contributions to your HSA on a pre-tax basis. The contribution is deposited into your HSA prior to taxes being applied to your paycheck, making your savings immediate. You can also contribute to your HSA post-tax and recognize the same tax savings by claiming the deduction when filing your annual taxes.
Money comes out tax-free. Eligible healthcare purchases can be made tax-free when you use your HSA. Purchases can be made directly from your HSA account, either by using your benefits debit card, online bill-pay, or check – or, you can pay out-of-pocket and then reimburse yourself from your HSA.
Earn interest, tax-free. The interest on HSA funds grows on a tax-free basis. And, unlike most savings accounts, interest earned on an HSA is not considered taxable income when the funds are used for eligible medical expenses.
