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Triple tax exemption that may be missing. Health savings account

As tax day approaches, the underutilized portion of many health care plans can significantly reduce your tax bill.

A health savings account, or HSA, can help pay for some medical expenses if you are eligible. And they offer three valuable tax benefits. Money is deposited in the pre-tax, can be increased without tax և is not taxed while spending it, as long as the costs are eligible.

It is rare for so many tax benefits to be included in one benefit, say financial advisers.

“It’s a huge deal,” said Neil Van ut Utfen, a financial planner based in Tempe, Arizona, “even if you don’t invest.”

Although there is a hook. Bills are only available to people who have health insurance plans that meet certain criteria, such as a high deduction, the amount a person pays for non-preventive health care before insurance. For 2020 և 2021, the amount is at least $ 1,400 for an individual or $ 2,800 for family coverage.

High deductions can make HSA eligible programs (commonly labeled as such) unattractive for people with chronic conditions or costly health needs, even if the monthly fees are lower.

But bills can also significantly reduce your tax bill.

Tax day is the deadline for making deductible payments on health savings accounts in 2020. This year, due to the epidemic, the date was postponed to May 17. But the IRS has not confirmed that the investment deadline will be delayed, even though it was last year.

An individual is not required to file personal deductions in the tax return claiming HSA benefits. It is reported through “adjustments” that reduce taxable income. (Two states, California and New Ersey, pay taxes on HSA as capital gains.)

Even as the number of HSAs increases, experts say they are less used, and more can be done to encourage their use. According to Devenir, an HSA service company, by the end of 2020, about 30 million HSAs had about $ 82 billion.

Bills can cover a range of medical and healthcare expenses, including doctor visits, hospital stays, surgery, vision, or dental care. The money can also be used for long-term care insurance premiums or services.

The Federal Government’s Epidemiological Assistance Program has expanded what HSAs can afford, including over-the-counter painkillers, allergy pills, tampons, and tampons. (IRS has a full list of eligible items).

Some employers coincide with HSA payments when making retirement savings. But they can be opened by self-employed people, contractors.

People often confuse HSAs with other types of health accounts, such as flexible health care billing. Unlike FSAs, health savings accounts are portable. If you change jobs or leave the workforce, you keep the account. Investment margins are higher for HSAs և There is no deadline to spend cash. Unspent money can be invested for health needs during retirement.

A study published last summer on the American Medical Association’s JAMA Network Open found that many people with very reduced insurance do not have a health savings account. And more than half of those who had, did not contribute to it last year. People with health plans purchased through a government exchange are more likely to not have an HSA, although the average charge in the federal market is quite high.

The results show that health programs, employers և financial advisors can do more to explain how HSAs work, simplify their use, and encourage investment, says study author Dr. Fff Effrey T. politics at the University of Michigan.

“Anything that makes it easier will be a good thing,” he said.

HSA suppliers are increasingly cutting fees և using technology to encourage usage. Fidelity Investments will launch a program this month that will allow employers with clients with HSAs to track account balances, investments and expenses. The app will also allow users to test the product to see if they are HSA compliant.

Others focus on the band’s economy workers. Starship, a start-up company, promotes its accounts by connecting with mountaineering and shipping companies. Its application allows employees to automatically invest in low-cost index funds վող exchanged funds. As there is no required minimum balance, users can invest all their investments. But it will also leave no cash to cover medical expenses until the investments are sold. Starship sets an initial investment threshold of $ 2,000, but users can lower it to zero, said CEO Sean Engelking.

Here are some questions and answers about health savings accounts.

How much can I contribute to HSA?

For 2020, people with personal health coverage were able to pay up to $ 3,550, including employer contributions. Family members could pay $ 7,100. (People over the age of 55 can pay an additional $ 1000). For 2021, the limit is set at $ 3,600 for individuals and $ 7,200 for family coverage.

Can I have more than one HSA?

Yes If, for example, you do not like the investment options offered by your employer’s HSA, you can open an HSA with another provider մեջ transfer funds into it (while keeping the old one open for any employer competition). But total investments, including those from your employer, can not exceed the annual limit set by the IRS, said Roy Ramto, President SA Founder H Founder of HSA Consulting Services.

What if I spend my HSA money on unauthorized items?

Expenses on free care or goods are subject to regular income tax plus a penalty of up to 20% of the amount deducted, according to Fidelity. The penalty is waived for anyone age 65 or older, although the amount is still subject to regular income tax. Expenditures on related items are tax free.

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