Unlock the Power of Health Savings Accounts in Estate Planning

When planning for the future, few tools are as versatile and tax-advantageous as the Health Savings Account (HSA). For Jacksonville residents, HSAs offer an incredible opportunity to manage healthcare expenses now and save for retirement—all while minimizing your tax burden. This article explores what makes HSAs such a powerful tool and how they can be part of your estate planning strategy.

What Is an HSA, and How Does It Work?

A Health Savings Account (HSA) is a tax-advantaged savings account designed for individuals enrolled in high-deductible health plans (HDHPs). The money you contribute to an HSA can be used to cover qualified medical expenses for you, your spouse, or dependents. Here’s why they stand out:

• Triple Tax Benefits: Contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified expenses are tax-free.
• Portability: The account stays with you, even if you change jobs or retire.
• Flexibility: Funds roll over year after year—there’s no “use it or lose it” rule like with Flexible Spending Accounts (FSAs).

In his video, Jacksonville Estate Planning Attorney Bill O’Leary outlines five key rules about Health Savings Accounts (HSAs).

1. Contributions to HSAs Are Always Tax-Deductible

• HSA contributions can be deducted from your taxable income, regardless of your income level. This is what is called an “above-the-line” tax deduction, which means you get to take the deduction even if you don’t itemize deductions. You can take both the HSA deduction and the standard deduction together!
• There are no income limits, unlike with certain IRAs, meaning even high-income earners can benefit from this tax break.

2. A High-Deductible Health Plan (HDHP) Is Required

• To qualify for an HSA, you must be enrolled in a health insurance plan that meets the requirements of an HDHP.
• HDHPs must have a minimum deductible and maximum out-of-pocket expenses, excluding preventative care.

3. Contribution Limits Apply

• Contribution amounts depend on your age and the type of HDHP you have.
• Contributions are prorated for the number of months you’re enrolled in an HDHP.
• Contributions can be made by you, your employer, or others, but total contributions cannot exceed the annual limit. The deadline is usually your tax filing date (e.g., April 15).

4. Distributions for Qualified Medical Expenses Are Tax-Free

• HSA withdrawals are tax-free if used for qualified medical expenses.
• This includes expenses for yourself, your spouse, or dependents, even if they’re not covered under your HDHP.
• Distributions for non-medical expenses are subject to tax and a 20% penalty if you’re under age 65.

5. HSAs Are a Great Tool for Retirement Savings

• Unused HSA funds can grow over time tax-deferred, making them a valuable asset for covering medical expenses in retirement.
• At age 65, you can withdraw funds for non-medical purposes without penalties, though they will be taxed as ordinary income.

These rules emphasize the flexibility and tax benefits of HSAs, making them a powerful tool for both immediate healthcare needs and long-term financial planning.

Eligibility for an HSA

To qualify, you need to meet these conditions:

1. Be covered under a high-deductible health plan.
2. Not have additional non-HDHP health coverage.
3. Not be enrolled in Medicare.
4. Cannot be claimed as a dependent on someone else’s tax return.

In 2024, HDHP deductibles must be at least $1,600 for individuals and $3,200 for families, making it essential to check your insurance plan’s compatibility.

Why Consider an HSA for Estate Planning?

HSAs are not just for managing short-term medical expenses—they’re also a long-term planning tool. Charles Schwab’s article, “Are HSAs the New IRAs?” explains how an HSA can complement your estate planning.

1. Supplement Retirement Income

After age 65, HSA funds can be used for non-medical expenses without incurring a penalty, though regular income taxes apply. This makes your HSA a potential secondary retirement account, similar to an IRA.

2. Minimize Healthcare Costs in Retirement

Healthcare expenses can drain retirement savings. An HSA helps offset these costs, including premiums for Medicare, long-term care insurance, and other out-of-pocket medical expenses.

3. Build a Legacy

Unused HSA funds can be passed on to beneficiaries. While a spouse can inherit the account as their own HSA, non-spouse beneficiaries will pay taxes on the remaining balance. Thoughtful planning can help maximize the benefit for your loved ones in Jacksonville.

Optimizing Your HSA in Jacksonville

Here’s how Jacksonville residents can make the most of an HSA:

Maximize Contributions

For 2024, individuals can contribute up to $4,150, while families can save up to $8,300. Those 55 and older can contribute an additional $1,000 annually. Automate contributions to ensure consistency and take advantage of employer matching, if offered.

Invest Your Funds

Many HSAs allow you to invest your balance in mutual funds, stocks, or ETFs. Over time, this can significantly grow your savings tax-deferred, especially if you don’t use the funds immediately.

Track and Save Medical Receipts

HSAs allow reimbursement for past qualified medical expenses as long as they occurred after the account was established. Save those receipts—they could turn into a tax-free windfall later!

Consult with a Jacksonville Estate Planning Professional

HSAs integrate seamlessly into broader estate plans but require careful coordination with your other assets and legal documents.

How Legacy Planning Law Group Can Help

In Jacksonville, planning your financial and medical future goes hand-in-hand with securing peace of mind for your loved ones. HSAs are just one piece of the puzzle which careful estate planning can integrate to support your goals. At Legacy Planning Law Group, we craft estate plans tailored to your unique needs. Whether you’re setting up trusts, wills, or navigating retirement strategies, our knowledgeable team is here to guide you every step of the way. Schedule a Discovery Call with Team Legacy to secure your legacy—because your family deserves nothing less.