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“HSAs are one of the most tax-efficient vehicles we have,” said Kevin Mitchell, Certified Financial Planner and Partner at TrustCore in Brentwood, Tennessee.
There is an “above the line” tax break on HSA contributions, a benefit for filers who do not declare deductions, and those deposits can reduce adjusted gross income.
Another advantage is the ability to invest and increase HSA credit tax-free. Account holders can use the money for eligible medical expenses at any time with no tax or penalties.
Those with fewer medical bills can now even skip withdrawals to save for retirement health care.
“It’s one of the few types of accounts that gives you all-round tax breaks,” said Eric Bronnenkant, CFP and auditor at Betterment, a digital investment advisor.
Without “use-it-or-lose-it” rules, HSA credits can be renewed every year and, unlike flexible spending accounts, are portable for changing jobs.
Bronnenkant said reducing adjusted gross income offered more than a lower tax burden.
“It can help you qualify for other services,” he said.
For example, the last round of stimulus payments may decrease above $ 150,000 for single applicants with Adjusted Gross Income greater than $ 75,000 and for married couples.
It can affect that as well $ 10,200 unemployment tax break, available to those making less than $ 150,000, he said.
People close to the thresholds can use HSA or individual contributions to the retirement account to fall into the eligibility area.
“It really helps people who are on the limit,” he added.
However, talking to a financial advisor or tax professional can provide clues about the overall financial picture.
With the end of the tax season, it could be time to weigh up HSA contributions for 2021, with the deadline for filing taxes shortened to next year.
“We always make sure clients know that when you find yourself in a position to qualify and be authorized, you should always maximize when cash flow allows,” said Mitchell.
Those looking to get the most of their HSA in 2021 can contribute up to $ 3,600 for auto insurance plans and $ 7,200 for family insurance.
For 2022 There is a new increase in the HSA contribution consider. Individual filers can save up to $ 3,650, and families can set aside up to $ 7,300.
With the ability to make HSA deposits by the tax deadline, Bronnenkant said it was easy to save money for the wrong year.
“By default, the provider assumes that it is the year in which the contribution is made,” he added.
Account holders can avoid problems by checking their contribution year.