Tax Tip Tuesday- Health Savings Accounts

*this transcript was taken from our Tax Tip Tuesday post on Youtube.  You can watch the video here.

tax tip tuesday

Hey everyone. Welcome to another Tax Tip Tuesday. Today I'm going to be talking about health savings accounts. These are by far one of my favorite types of tax savings tools and if you're eligible for which we'll go over in a moment, how to become eligible, they really are a great way for socking away some extra money during the year. Now, a health savings account is basically just that you're putting away a certain amount of money each year that will allow you to grow it not only you put it in pretax, it grows tax free and it comes out tax free. Ah, triple threat. Love it.

So basically, it's treated ... The only time that you can actually have it come out tax free though is if it's for medical expenses and you don't have to wait until retirement to actually use it. You put the money in and then you can use your HSA for any sort of medical expenses that you have. Qualified medical expenses, I should say. So you can't go out and like get a boob job unless it's like medically necessary and be able to write it off through your HSA. Doesn't count. But normal doctor's visits, copays, prescriptions, eyes, teeth, all those sort of things can count.

The only way that you're actually allowed to do an HSA is if you have a high deductible plan. Now the IRS for 2019 defines a high deductible plan as any plan with a deductible of at least $1,350 for an individual or $2,700 for a family. And then the total yearly out of pocket expenses cannot be more than $6,750 for individuals and $13,500 for a family.

For 2020, it increases a little bit. So the deductible has to be at least $1,400 for individuals and $2,000 for family. And then the out-of-pocket, total yearly out-of-pocket expenses can't be more than 6,900 for individual and 13,800 for family. So if you qualify to have an HSA set up, do it because you're able to go and put away, I think for 2020 it's $7,000? I should look that up. Hold on.

HSA ... I should have looked this up beforehand, shouldn't I? HSA contribution limits 2019. So for 2019, $3,500 for individuals, sorry, for singles and then 7,000 per family. And then for 2020, let's see if that's come out yet. Oh, it's going up $50 bucks. So it ends up being a $3,550 for single and then $7,100 for families.

So just think about that. You're able to put away, let's just say for family $7,100 a year, and of course it will probably go up every year into that account. If you just leave it and not even use it, then you can end up, you know, accumulating quite a bit over the 30, 40 years that you're actually working. And what's also great about it is let's say you don't use it for medical expenses when you're older, it acts just like a regular IRA.

So when you take money out, you just pay tax at at the rate that you're at at that point when you take it out. What some people like to do too is you're able to go and save all of your receipts as well. So let's say, you know, for 30 years you save all your medical receipts. You can use digital, it's completely fine, save all your qualifying receipts and let it grow, grow, grow, and then you know when you're ready to actually have that reimbursed, then have it all reimbursed at that one time. So that's another strategy that a lot of people like to use.

But I hope you found this interesting and something that you could do. Do you qualify for the HSA? Do you have it already set up? It's great for, like I said, for that tax savings and for investing and everything. So thanks for listening. Make sure to like us on Facebook go and like us on YouTube, all that sort of great stuff. And any sort of questions you have, feel free to contact me. I'm doing some year end planning right now. And so if you want to know how to eliminate surprises on your return and have some year end planning, then let's do it. So thanks again and have a great night. Bye.