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If used correctly, HSAs can give you a triple-tax advantage.
Heres what it’s crucial that you know.
Who Can Open an HSA?
You do have to meet certain eligibility requirements to open an HSA account.
They are:
What Are the Benefits of an HSA?
An HSA has several benefits that can help your pocketbook in unexpected ways.
Here are some key benefits:
1.
Triple Tax Advantage
2.
Portable Account
Your HSA account always belongs to you.
Even if you switch employers or retire, your HSA account stays with you.
Unused funds roll over and can be saved for future expenses.
Benefits During Retirement
After 65, non-medical withdrawals are not subject to a 20% penalty.
Although there is not a penalty, you will have to payincometaxon the withdrawal.
Broad Coverage for Medical Expenses
HSA funds offer to cover several kinds of qualified medical expenses.
Coverage includes co-payments, dental and vision care, prescriptions and deductibles.
Extends to Dependents
Your HSA funds can cover dependents, including your spouse and children.
The coverage only includesqualified medical expenses.
Misconceptions About HSA Accounts
Here are some common misconceptions about HSA accounts:
Myth No.
1: You lose your HSA funds at the end of the year.
HSA funds roll over from one year to the next.
These funds do not have an expiration date.
Myth No.
2: Only your employer can contribute to your HSA.
Although your employer can contribute, you’re able to also contribute too.
As long as the contribution by you and your employer doesnt exceed the IRS limit.
Myth No.
3: HSA funds can only be used for qualified medical expenses in the United States.
Myth No.
4: You cannot invest your HSA funds.
Myth No.
- you could only use HSA funds for qualified medical expenses.
This only true if you are under 65 years old.
After age 65, you could use your HSA funds for non-medical expenses.
You wont be penalized for it, but the withdrawal will be taxed as general income.
How To Report Your HSA Contributions on Your Tax Return
1.
The document reflects the following:
Form W-2: It reflects your employers contributions to your HSA.
Form 1099-SA: This form will show any distributions (withdrawals) from your HSA.
Complete IRS Form 8889
Form 8889reports HSA contributions, withdrawals, and determines the HSA deduction.
This form must be attached to your federal tax return.
You will need to fill out all relevant parts.
Part I: HSA Contributions and Deductions:
Part II: HSA Distributions
3.
Transfer to Your Form 1040
4.
Keep Records
Keep all documentation in case of an audit.
You may need to provide proof that your expenses were forqualified medical purposes.
Final Take
HSA accountholders have several tax advantages.
However, if you contribute money to your HSA through your paycheck, those funds are not deductible.
FAQ
Takeaway
Finding and working with a financial advisor is a great idea.
A financial advisor will help keep track of your finances and assist you in attaining your financial goals.
Get to know your Financial Advisor options today for Free!
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