Helath Savings Account are becoming a more common feature of benefit packages. But even if you are among the 25 million HSA account owners, there may still be many things you don’t know about these accounts..
Big tax benefits: An HSA, which is offered in conjunction with a high-deductible health plan (HDHP), is a tax-exempt trust or custodial account you set up to pay for or reimburse certain medical expenses you incur, according to the IRS. Contributions and distributions, if the latter is used to pay for qualified medical expenses, aren’t taxed. Plus, the funds in the HSA grow tax-free.
What some people might not realize is contributions made via payroll avoid the Federal Insurance Contributions Act (FICA) tax, says Carl Hall, the chief investment officer at Century Bank and the founder of HealthyHive.com, a Boston-based provider of HSAs and health-care cost information. That makes HSAs as “tax-perfect as it gets,” he says.
HSAs are underused: HSAs are rising in popularity, but they are still underutilized by most Americans, says Rob Foregger, the co-founder of NextCapital, a Chicago-based robo-adviser.
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