November 13, 2018

Health Savings Accounts: A Valuable Tax-Planning Tool

By Jason Crowley, CPA, MBA

We are coming to the time of year when many taxpayers are starting to think about year-end tax planning and what they can do to minimize tax liability for the upcoming tax season. There are always plenty of articles to read about maxing out IRA or other retirement accounts you may have. This article will focus on the triple tax advantages of the Health Savings Account (HSA) as a tax planning tool that may be able to help you reduce your tax liability.


What is an HSA?


The IRS defines an HSA as a tax-exempt trust or custodial account that you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. In plain English, the money that will go into the HSA account is pretax income, very much like an IRA contribution. The maximum HSA contributions for 2018 are $3,450 for an individual and $6,850 for a family, with anyone age 55 and older eligible for an additional $1,000 catch-up contribution.

To be eligible for this type of account, you must qualify by having a high-deductible health insurance plan that meets certain criteria. For 2018, the minimum deductible for family coverage is $2,700 ($1,350 for individuals), and the maximum deductible is $13,300 for families ($6,650 for individuals). Unfortunately, taxpayers who are enrolled in Medicare or are claimed as a dependent on anyone’s return are not eligible to contribute to an HSA account.

Tax-Free Withdrawals


Withdrawals from your HSA account are tax free so long as they are for qualified medical expenses. Qualified medical expenses typically fall under doctor and dentist visits, prescription drugs, eyeglasses, medical devices, nursing care, and long-term care, to name a few. You are welcome to read over IRS Publication 502 if you would like a more comprehensive list of allowable expenses. Some expenses that would not be covered under an HSA account include cosmetic procedures, prescription drugs from other countries, veterinary services, and health club memberships.

The Triple Tax Advantage


By now, most of you are thinking you have a pretty good grasp on how the HSA accounts work, but here is the real benefit that is not talked about very often. Most HSA administrators will allow the HSA account to be invested in certain investments such as ETFs, stocks, and mutual funds through a self-directed brokerage account. This allows the account to grow over time with these investments tax-free as well. If you reach out to me, I will email you a HSA calculator to see the estimated growth of your account over time along with the estimated tax savings.

Let’s recap all three tax advantages of the HSA account: 1. You get to contribute money to the account on a pre-tax basis. 2. Money in this account may be invested like a typical IRA and will continue to grow tax-free. 3. Withdrawals from this account are tax-free so long as they are for qualified medical expenses.

Every individual and business has unique characteristics that require intimate knowledge to make the proper decision on these types of strategies. To avoid potential pitfalls, please seek advice from your tax advisor before implementing any complex tax strategies. If you wish to discuss how I may be able to help you achieve your future financial goals, please contact me at (435) 632-9156 or at

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