Health Savings Accounts offer you tax breaks & more.
Why do people open up Health Savings Accounts in conjunction with high-deductible insurance plans? Well, here are some of the compelling reasons why younger, healthier employees decide to have HSAs.
#1: Tax-deductible contributions. These accounts are funded with pre-tax income. Your annual contribution limit to an HSA depends on your age and the type of insurance plan you have in conjunction with the account. For 2015, limits are set at $3,350 (individual plan) and $6,650 (family plan). If you are older than 55, those limits are nudged $1,000 higher.1,2
#2: Tax-free growth. Under federal law, the money in an HSA grows untaxed. Some HSAs even have investment options.3
#3: Tax-free withdrawals (as long as withdrawals pay for health care costs). Distributions out of an HSA are tax-free as long as they are used to pay qualified health-care expenses. The is the federal tax treatment, and most states treat HSA distributions in like fashion.3