The Triple Tax Benefits of an HSA

It’s healthcare enrollment time, when employees at many organizations select their healthcare coverage for the year ahead. And those who participate in a high-deductible health plan (HDHP) may be eligible to contribute to a Health Savings Account (HSA), which has several tax advantages.

Qualifying for an HSA requires an HDHP

According to the IRS, you must be enrolled in a high-deductible health plan in order to have a health savings account. The plan must meet the following parameters to be considered “high-deductible”:

2023 High Deductible Health Plan Parameters1
	Individual	Family
Minimum Deductible	$1,500+	$3,000+
Maximum Out of Pocket	<= $7,500	<= $15,000

There are additional IRS restrictions for opening and funding an HSA. For example, you cannot have any other health coverage, such as through your spouse, be enrolled in Medicare, or be claimed as someone else’s dependent².

And if you’re eligible to contribute in 2022 but have not yet done so, it may not be too late to participate! Check with your plan benefits administrator for more information.

There is a maximum amount you can contribute each year

The IRS sets the maximum allowable contribution limit each year, adjusting for inflation and other factors. For the 2023 calendar year, the inflation adjusted limit is:

2023 Contribution Limit
Individual	Family	Ages 55+
$3,850	$7,750	Additional $1,000 (catch-up)

Contributing to an HSA allows you to benefit from tax advantages

The following three tax benefits make HSAs an attractive way to fund your healthcare:

1. Contributions are typically tax-deductible. HSA deposits are usually made with pre-tax dollars through your employer’s payroll or, if you’re self-employed, may be deducted on your tax return.
2. Earnings grow tax free. The longer your assets are invested in an HSA, the greater the opportunity for your contributions to grow. And funds in an HSA are not “use-it-or-lose-it,” but can be used at any time. Therefore, if possible, you may want to save the funds in your HSA for retirement when your healthcare costs may be greater.
3. Qualified withdrawals are tax-free. HSA funds withdrawn for qualified medical expenses are not taxed. According to IRS Publication 502, qualified medical expenses include diagnostics, prevention, and treatment of diseases (including mental illness), and medical equipment and supplies for you, your spouse, and your dependents. Although you can no longer contribute to an HSA once you’re enrolled in Medicare, you can continue to use the funds for medical expenses, including Medicare premiums³.

HSA contributions are an element of your wealth plan.

The assets you put away in an HSA and your strategy for using them are aspects of your wealth plan. Your Washington Trust Wealth Advisor can work with you and your tax advisor to determine the best healthcare savings and overall tax saving strategies for you and answer any questions you may have about investing for you and your family’s health and wellness.

Not yet working with a Washington Trust Wealth Advisor? Please contact us to learn more!