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Five Tips for Health Savings Account (HSA) Holders

Posted on September 14, 2017August 13, 2019 by Jeff Bridges

Retirement comes with many perks including a health saving account (HSA). An HSA is a savings account that may be used to offset medical expenses. One of the best things about health savings accounts is the fact that they are tax deductible. Here are five ways to make the most of your account.

1. Invest your HSA earnings

You have full liberality to invest your HSA in the same manner that you distribute funds in your 401(K). Many people choose to make their health accounts grow by putting money towards stocks and mutual funds. Some jump on the precious metals boat and coast into more money by investing small amounts in gold and silver. Just as with a 401(K) or other IRA, you should be mindful of where additional funds are going. You do not want to invest a large percentage of your HSA in a company that goes bankrupt months after your purchase stocks.

2. Take full advantage of qualified expenses

You can withdraw funds from your savings account to cover tax-deferred contributions and tax-free distributions. All of the fund removals, however, must be applied to qualified medical expenses (QMEs). You can potentially save thousands in out-of-pocket expenses related to health and wellness using your HSA as long as you keep the receipts.

3. Use distributions wisely

While an HSA potentially covers every expense related to health and wellness, you may not want to use your plan for small costs. Paying for recurring things such as prescriptions and annual doctor’s visits out-of-pocket gives your savings account the chance to build value, which may be used for emergencies when large payouts are necessary. You should use the distribution incentive sparingly when it comes to small expenses that you can technically afford to pay.

4. Utilize maximum contributions

Contributing the maximum amount to your HSA comes with incredible tax benefits. Your plan’s earning potential increases when you give the maximum dollar amount to your plan. You, then, have the right to deduct up to the full contribution amount from your tax bill, which means that you are not losing money when paying more into your HSA.

5. Study to be a better consumer

You should not choose the first HSA plan offered but rather compare several possibilities before making a decision. Reviewing your health habits is the first step to understanding what you need from an HSA plan. You may not need an account that offers the bells and whistles if you are someone who visits the doctor once a year. You may, however, require a premium plan if you have a preexisting condition that calls for several checkups and treatments throughout the year.

Implementing healthy lifestyle habits is the greatest way to get the most out of your HSA plan. The more that you consume wholesome foods and keep a good workout regimen, the less often you may have to see the doctor. An HSA plan has the potential to be a financial lifesaver during the retirement years if you work the system well.

Health Savings Account: Building Wealth Through Health

Posted on January 31, 2012November 30, 2018 by questadmin

By now you have probably heard of the Health Savings Account (HSA). What you may not know is just how amazing this type of account actually is, in terms of premium savings, tax savings, and, most importantly, what you can invest in with your HSA.

Qualification Requirements. In order to have a Health Savings Account, you must be an “eligible individual.” To be an eligible individual, you must 1) have a High Deductible Health Plan (HDHP); 2) have no other health coverage, with certain exceptions; 3) not be enrolled in Medicare; and 4) not be claimed as a dependent on another person’s tax return. More complete information of the requirements may be found in IRS Publication 969, which is freely available at www.irs.gov.

While a full description of a HDHP is beyond the scope of this article, its key features are a higher deductible than many insurance policies and a maximum limit on the out-of-pocket expenses (including the deductible and co-payments, but excluding the premium payments). For 2011, the minimum deductible is $1,200 for self-only coverage and $2,400 for family coverage, and the maximum out-of-pocket expense is $5,950 for self-only coverage and $11,900 for family coverage. All major insurance companies offer HSA compliant plans. Employers may also offer an HSA compliant plan, since these policies tend to be less expensive. If the employer makes contributions to your HSA it is excluded from your income.

Premium Savings. Because of the higher deductibles and plan features, HSA compliant plans tend to cost less. When I switched from a policy with a $2,000 general deductible and a $200 drug deductible to an overall deductible of $2,200, the premiums for my family were reduced from $754 per month to $450 per month. That’s a total premium savings of $3,648 per year!

Tax Savings. One of the best features of an HSA is the tax savings for contributing to the account. Beginning in 2007, the contribution limit is no longer tied to the deductible. The contribution limit for 2011 is $3,050 for self-only coverage and $6,150 for family coverage. To the extent you make the contribution (as opposed to your employer), these amounts are fully tax deductible, no matter what your income level. If you are age 55 or older, you may contribute an additional $1,000 for 2011. There is even a one time ability to take a distribution from your IRA to fund your HSA with no taxes or penalty.

In my tax bracket, the ability to deduct my contributions is significant. I contributed $6,150 for 2011 and will save approximately $2,030 on my taxes. If you add the premium savings over a traditional health plan to the tax savings from contributing to an HSA, the total benefit to me goes a long way towards covering the cost of my contribution.

Distributions from an HSA for “qualified medical expenses”, which are broadly defined and include expenses for yourself, your spouse and your dependents, are tax free forever! Because the expenses only have to occur after the HSA has been established, virtually everyone will end up with qualified medical expenses at some point in their life. You can take a qualified distribution at any point after the expense is incurred, even in later years, provided you keep track of the expenses.

Investment Opportunities. Even better than the premium and tax savings is the ability to invest your HSA funds in non-traditional investments, just as you would in a self-directed IRA. Many banks and other companies offer the convenience of an HSA account with a debit card for you to pay medical bills with. However, if you are healthy and don’t have a lot of expenses or you can fund the expenses out of pocket, you can make your HSA account grow much faster with investments other than mutual funds or savings accounts which may pay very little.

With a self-directed HSA, you choose your HSA’s investments. Common investment choices made by self-directed HSA participants at Quest Trust Company Inc. in Houston,Texas include real estate, both domestic and foreign, options, secured and unsecured notes, including first and second liens against real estate, C corporation stock, limited liability companies, limited partnerships, trusts and much more. In my own HSA I have a portion of two hard money loans generating yields of 12%, a portion of a shared appreciation mortgage which generates 10% in addition to a share of profits when the property is eventually sold, and a membership interest in an LLC owning a debt-fee rental unit.

The Health Savings Account is truly the best of all worlds. It can significantly reduce your health care premiums, reduce your taxes, and produce tax free wealth through non-traditional investments in a self-directed HSA. With a self-directed HSA (or IRA), you don’t have to “think outside the box” when it comes to your HSA’s investments. You just have to realize that the investment box is much larger than you think!

Health Savings Account: The Best of Both Worlds by Nathan Long

Posted on January 31, 2012 by questadmin

By now most people have heard of using self-directed IRAs to make purchases other than stocks, bonds, and mutual funds. Companies like Quest Trust Company Inc., operating out of Houston and Dallas, Texas as well as Mason, Michigan, have been doing a good job, through a series of free education seminars, of teaching people about using self-directed IRAs to buy real estate, foreclosures, foreign property, invest in notes, deeds of trust, private stock, limited partnerships, LLCs, and other non-traditional assets. In examining some of the other government sponsored savings vehicles available for investing in non-traditional assets I discovered the highly under-utilized Health Savings Account (HSA). Before my recent employment with Quest Trust Company I did not know that you could purchase non-traditional assets with a Health Savings Account (HSA).

A Health Savings Account is a powerful investing tool that many people overlook. Because it is the only account where contributions are tax deductible and qualified distributions are tax free, it is the best of both worlds. Furthermore, the definition of “qualified medical expenses” is fairly broad. IRS Publication 502 has an available list of qualified medical expenses. These include a broad range of medical, dental and vision expenses, but generally do not include the cost of health insurance premiums. You can, however, treat premiums for long-term care coverage, health care coverage while you receive unemployment benefits, or health care continuation coverage required under any federal law (COBRA) as qualified medical expenses for HSAs. If you are age 65 or older, you can treat insurance premiums (other than premiums for a Medicare supplemental policy, such as Medigap) as quailed medical expenses for HSAs.

In order to be an eligible individual and qualify for a Heath Savings Account you must have a High Deductible Health Plan (HDHP), you cannot be enrolled in Medicare, and you cannot be claimed as a dependent on someone else’s tax return. Recent changes in HSA rules allow you to contribute the maximum amount to your HSA even if your deductible is less than that amount. If you are an individual the amount you can contribute for the year 2007 is $2,850 and for a family it is $5,650. In addition, if you are over the age of 55 you are allowed an $800 catch up contribution. Unlike other plans you may have heard about, the amount you put into a Health Savings Account is allowed to rollover from year to year and the profits on any investments with the money are tax deferred. When the money is used to pay or reimburse for qualified medical expenses the distributions are tax free.

The knowledge of how to invest with a self-directed Health Savings Account from Quest Trust Company Inc. allowed me to do some amazing investments this year. I have a High Deductible Health Plan (HDHP) for my family. This health plan works well for me. I personally like high deductible insurance policies. My family rarely turns in a claim on most of our insurance policies. Because my family is financially stable, in the event of an accident or major illness paying a few thousand dollars would not be a problem. Over the years I have saved a lot of money by using high deductible insurance policies. When I discovered that Quest Trust Company offered self-directed Health Savings Accounts I saw a great opportunity.

This year my wife needed extensive dental procedures. The cost went well over $5,650. The insurance company did not pay because it was a dental procedure and I don’t carry any dental insurance. I opened an HSA with Quest Trust Company Inc. with a maximum deposit of $5,650. I could have immediately taken a distribution for my wife’s dental expenses, effectively negotiating a discount on the dental bill equal to my marginal tax rate. Instead I chose to leave the money in the HSA and invest the money in partnership with my son’s Roth IRA and my wife’s Roth IRA to purchase a note secured by a first lien on real estate. The note was for 12% with a 2% origination fee and all costs were paid by the borrower, including Quest’s fees, with an 18 month balloon.

I can add $5,800 again to the HSA in January of 2008. As the money grows I can take any amount of money out of the account as long as I have qualified medical expenses, including dental or vision expenses, to be reimbursed. Since I already have a large amount of dental bills I just keep these bills along with any others in a file. When I want to withdraw some money for any reason I just request a reimbursement for the expenses regardless of the year the expenses were incurred, as long as the expense was incurred after opening my HSA. That being said, don’t make the same mistake I made. I opened my HDHP at the first of the year but waited to fund my Quest HSA until I could fund it fully. My wife had some of the dental work done before I opened the HSA. The work done before the HSA was opened will not qualify for a tax free reimbursement. If I would have simply opened the account with a small amount then funded the rest later in the year I could have used those expenses as well.

If in the future we decide that a HDHP is not good for our family we can switch to another plan. We will not be able to continue to contribute to the HSA, but we can keep the HSA open and withdraw the money out as needed tax free for qualified medical expenses.

If I had just paid for the dental expenses out of my pocket like I originally planned to, I would have lost the opportunity for a $5,650 deduction on my taxes and the opportunity to make a great investment. Remember, I can take the money out as my investments mature and gains on the investments can be withdrawn tax free. Like we always say here at Quest Trust Company, Inc., “You don’t have to think outside the box, just realize the box is bigger than you think!”

Happy Investing!