When to Spend Your HSA Charlotte, NC
The cost of healthcare can be intimidating. Luckily, there are ways to save on insurance and out-of-pocket costs. A healthcare savings account is one strategy to help offset the cost of medical and dental expenses.
Patients with healthcare savings accounts can use them for dental services at Randolph Dental Care in Charlotte and the surrounding area. Our team works with clients to determine the optimal financial strategy for treatment. Call us at (704) 366-3622 to learn more or to schedule an appointment.
An HSA Is an Investment Tool for Retirementt
An HSA is a great investment tool for retirement because of its tax treatment. It is one of the most tax-efficient investment options for people to save for retirement. Having an HSA offers greater investment growth potential and after-tax balance accumulation than other retirement options.
A crucial part of a retirement plan includes making regular contributions to an HSA to cover medical expenses in the future. People should consider the number of years between now and retirement. Some people may watch to take advantage of catch-up contributions as they approach retirement. While people can use their HSA for quali?ed medical expenses like dental care, retirees can also use their savings to pay for any non-qualified medical expenses once they reach age 65.
“Having an HSA offers greater investment growth potential and after-tax balance accumulation than other retirement options.”
HSA Tax Benefits
One of the greatest benefits of opening an HSA is its lower tax liability. Lowering tax liability with an HSA allows people to keep more of their paycheck each year and give less to the IRS. Benefits to opening and contributing to an HSA include:
- Contributions: The money contributed to an HSA is not taxed. Some people set their accounts up so that contributions are automatically taken out of their pay each month. The HSA withdraws the contribution before taxes, so it does not count as income and lowers the yearly tax liability.
- Earnings: An HSA account can earn interest. Earnings on an HSA account are also tax-free. The larger an HSA balance is, the more tax-free earnings it can get.
- Withdrawals: When it is time to use a portion of the HSA account, withdrawals are also not taxed. People can use their withdrawals for any type of qualifying medical expense. There is no need to time medical expenses by the calendar since an HSA does not need to be spent by the end of the year.
“Lowering tax liability with an HSA allows people to keep more of their paycheck each year and give less to the IRS.”
Investing and Spending Strategies
The key to taking advantage of the HSA rules is to spend and invest wisely. Since there are many benefits to keeping an HSA for retirement expenses, it is important for people not to spend all their contributions. Instead, opt to spend a little on routine out-of-pocket medical or dental expenses and keep the balance growing with contributions.
Many dental expenses qualify for HSA spending. For items that are not covered by insurance, the HSA can help bridge the gap. To grow an HSA balance, it is a good idea to invest a portion of it in mutual funds, bonds, or stocks.
“To grow an HSA balance, it is a good idea to invest a portion of it in mutual funds, bonds, or stocks.”
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Transferring an HSA When Changing Jobs
Another benefit of having an HSA is the ownership of it. The person who opened the HSA account is the owner, not their employer. People that move jobs and change health plans do not have to worry about losing their HSA.
Once people move to a new job and receive a new plan, they can roll their previous account into their new one. HSA balances also roll over, so there is no risk of losing any money left over in the account at the end of the year. HSA users will have access to their money for qualified expenses.
“People that move jobs and change health plans do not have to worry about losing their HSA.”
Questions Answered on This Page
Q. What are the HSA tax benefits?
Q. How should people spend and invest their HSA contributions?
Q. How is HSA an investment tool for retirement?
Q. What are the steps in transferring an HSA when changing jobs?
Q. When is the right time to open an HSA?
People Also Ask
Q. What are the pros and cons of an HSA?
The Right Time To Open an HSA
As long as a person is qualified, it is possible to open an HSA at any age. However, it may be beneficial to open an HSA at a younger age because of the power of time. Investing early on gives people the ability to have their contributions compound tax-free for longer. People should start saving with an HSA when they are young and healthy with lower health care costs.
Early on in their careers, people do not have to save a large amount to their HSA since there is no minimum contribution. However, saving money in an HSA while young can help people get the most out of their long-term retirement savings. We recommend developing an investment and savings strategy as early as possible.
“Investing early on gives people the ability to have their contributions compound tax-free for longer.”
Frequently Asked Questions
Q. What are some examples of qualified medical expenses for a healthcare savings account?
A. HSA withdrawals are only tax-free when spent on qualifying medical expenses. These include out-of-pocket expenses for doctor visits, medical procedures, co-pays, dental costs, vision care, medications, and feminine hygiene products. The expenses can be for the individual, a spouse, or a dependent.
Q. How much can I contribute each year to my HSA?
A. Each year, the IRS sets a limit on the amount of money someone can contribute to an HSA. For 2021, the limit for an individual is $3,600, and for a family, it is $7,200. Individuals over the age of 55 can contribute an additional $1,000 each year as a catch-up contribution.
Q. What is a high-deductible health insurance plan?
A. To qualify for an HSA, an individual must be participating in a high-deductible health plan. With these, the individual is responsible for paying a certain amount before the health insurance company steps in and starts covering expenses. The deductible needs to be at least $1,400 for an individual plan or $2,800 for a family plan.
Q. What are the penalties for withdrawing funds for ineligible purchases for an HSA?
A. There is a penalty when using an HSA to pay for things that are not qualifying medical expenses. First, you have to pay taxes on that money as it now counts as income. Next, if you are younger than 65, you are charged another 20% penalty on the funds. To avoid this, do not withdraw HSA funds for non-medical expenses.
Q. Who else can contribute to my HSA?
A. Some employers also make contributions to their staff's HSA plans. If your job contributes to your HSA, be sure that you do not go over the IRS contribution limit. Excess contributions will result in a 6% tax penalty.
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Dental Terminology
Call Us Today
There are many advantages to HSA, from managing the costs of some dental treatments to investing for retirement. Our team can help you understand how these savings accounts work and what expenses qualify. Call us at 704-366-3622 for more information or to schedule an appointment.
Helpful Related Links
- American Dental Association (ADA). Glossary of Dental Clinical Terms. 2024
- American Academy of Cosmetic Dentistry® (AACD). Home Page. 2024
- WebMD. WebMD’s Oral Care Guide. 2024
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