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Welcome to Roots of Wealth. A financial blog focusing on life, planning, and interesting information worthy of sharing with you.
Roots of Wealth is proudly managed by Crimmins Wealth Management Located in Ramsey, NJ.
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Thinking About Using a Health Savings Account?

November 4, 2020 by Maureen Crimmins Leave a Comment

health savings account photo
Photo by focusonmore.com

Many of you have heard of Health Savings Accounts (HSAs) but may not have given them much thought. An HSA allows a health plan participant to save money in their account tax-free to pay for or reimburse themselves for qualified health care expenses. Your contributions are tax-deductible (or pre-tax if through your employer), they can be invested tax-free or earn money in a savings account and can be withdrawn tax-free for eligible medical expenses at any time. It’s a trifecta of savings!

Many of you probably participate in a flexible savings account (FSA) but you may want to consider an HSA for next year. HSA-eligible health insurance policies are high-deductible plans (with at least $1,400 for individual coverage or $2,800 for family in 2020). The HSA is different than a FSA in a few ways:

  • An HSA account stays with the account holder whereas the FSA ends when your employment ends.
  • The funds in an HSA account are yours forever unlike the FSA where the funds are only good for that year. It’s a use it or lose it situation.

There have been recent changes to the rules for HSA plans as well. As of January 1, 2020, you can now withdraw money from the plan tax-free for items like over the counter medicines, thermometers, feminine products and even sunscreen with an SPF of 15 or higher. In addition, participants can withdraw funds to pay for their health insurance premiums while they are collecting federal or state unemployment benefits or for their COBRA premium payments even if they aren’t receiving unemployment.

Because of the tax advantages, this type of plan can be a good tool to use as part of your retirement planning. If you fully fund it and invest the money, it can grow tax-free over time. By paying medical expenses out-of-pocket from the time the HSA is opened, you allow the funds in your HSA to continue to build and earn tax-free interest. Then you withdraw the money tax-free at retirement as a reimbursement. Just be sure to keep track of your medical receipts, explanations of benefit and invoices.

And one of the most interesting options is the ability for a parent to fund an adult child’s HSA annually up to the IRS contribution limit. So your child(ren) can receive a tax-free lump sum from you that can be invested and grow tax-free over time, effectively allowing you to put money away for them but not be subject to estate taxes.

Now is a good time to start looking at your options for next year!

Have A Wealth Management Question? Click Here To Ask Dan

Hope you have a great week!

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The foregoing content reflects the opinions of Crimmins Wealth Management and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.

About Dan Crimmins

Dan Crimmins, co-founder of Crimmins Wealth Management, is a financial coach and fee only financial planner. Have a financial question? ASK DAN

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