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November 2017

How about a Triple Tax-Advantaged Dual-Savings Vehicle?

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While a Health Savings Account (HSA) funds qualified medical expenses in a tax-advantaged way, it may also serve as a supplemental source of retirement income. Here’s how.


HSA Requirements


To have qualified for an HSA in 2017, you must have had a high deductible health plan (HDHP). The HDHP must have $1,300 and $2,600 annual deductibles for single taxpayers and couples filing jointly, respectively, while meeting out-of-pocket limits. In 2018, HDHP deductibles will increase to $1,350 for singles and $2,700 for joint tax filers.


Triple Tax Benefits


When you meet these and other rules, an HSA is triple tax-free. First, contributions are tax-free. In 2017, single taxpayers can put up to $3,400 into the account, while couples filing jointly may contribute up to $6,750 annually.


You may contribute another $1,000 annually beginning in the year you reach age 55. When both spouses are at least 55, they must have separate HSA accounts if they each want to contribute the maximum. In 2018, single taxpayers can add another $50 to their HSA and joint filers may add an extra $150.


Earnings on an HSA account balance grow tax-free and distributions taken for qualified medical expenses are tax-free. At any age, you may roll over the remaining balance from year to year.


Retirement Extras


If you have relatively small healthcare bills and your balance grows annually, your HSA could provide additional retirement income. At age 65 and beyond, distributions for any reason other than qualified medical expenses and Medicare premiums are taxable, but won’t incur the 20% tax penalty levied on nonqualified distributions made before age 65.


Although Congress has talked about increasing the amount you can contribute to an HSA, the current limits are generous enough not to pass up. Consider contributing to your health – and your retirement.


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