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How to Maximize Health Savings Accounts for Retirement Spending by Adam Cohen, CPA

Posted on June 23, 2016 by Adam Cohen

Taxpayers who participate in high-deductible health plans are permitted to make tax-deductible contributions to health savings accounts (HSAs) to cover the costs of qualifying medical expenses. The current pre-tax contribution limits are $3,350 for individuals and $6,750 for family coverage, which will increase $50 for individuals and remain the same for family plans in 2017.

To be eligible to contribute to an HSA in 2016 and 2017, a taxpayer must participate in a health plan with an annual deductible of $1,300 for self-only coverage and $2,600 for family coverage. The maximum out-of-pocket medical expenses a HSA may cover will also remain unchanged in 2017, with a cap of $6,550 for self-coverage and $13,100 for family coverage.

Contributions to HSAs can be invested in a variety of mutual funds, similar to how workers save money in 401(k) and other retirement plans. As a result, workers not only have the ability to use tax-deductible HSA contributions to cover rising out-of-pocket medical expenses, they also have the opportunity to carry HSA balances forward from year to year and allow them to grow tax-free for use in retirement. As long as distributions from HSAs are used to cover qualified medical expenses, they are not subject to taxes. Therefore, retirees will have the benefit of paying down a significant portion of HSA savings before having to tap into retirement savings to pay routine expenses.

Understanding all of the health insurance options and their tax implications to individuals and businesses is a complex endeavor. The professional advisors and accountants with Berkowitz Pollack Brant have deep knowledge and experience guiding taxpayers through the process including access tax efficiency and compliance with the Affordable Care Act.

About the Author: Adam Cohen, CPA, is an associate director in the Tax Services practice of Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale office at (954) 712-7000 or via e-mail info@bpbcpa.com.

 

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