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[Video] Why Fund An HSA?

by Financial Design Studio, Inc. / April 23, 2019

STEPHEN SMALENBERGER, EA ®

So we talked about the overview of a Health Savings Account an HSA. But now let’s continue on that, or build on that.

Why would you want to fund it? What’s the advantages of funding it, versus paying out of pocket? Let’s look at those right now.

So to make the math real easy. Let’s just assume you make a round number. You make $100,000. If you put some money into the account, it’s deductible. It’s pre-tax. So maybe you can’t do the $6,900, but you put in $5,000.

So now that reduces what is taxable, on your tax return to $95,000. And that money is now in that account. It’s growing tax free.

Your using it hopefully for medical expenses in the future. So it’ll be completely tax free. Sure that’s great. I can deduct it, but why wouldn’t I just pay it out of pocket and then deduct the medical expenses? If you’re making $100,000, there are some limitations to that.

So on Schedule A of your tax return where you itemized deductions, there is a floor. Basically a mathematical formula that says, what you make times this percentage is where your deductions starts.

So $100,000 at 7.5 percent, that’s 2018 limits, means the floor–your deductions, start at $7,500. So if your medical expenses were $5,000, you haven’t even met that yet. Your expenses would have to exceed $7,500, before they even start being deductible. So you may not even be able to itemize. You’re taking a standard deduction anyways.

In future years– so this 2017 and 2018– in 2019 and years going forward, this jumps up to 10 percent. So now it’s not $7,500, it’s $10,000. So if you’re paying out of pocket and you’re hoping to deduct these on your return, you’re not even going to reach those limits before it’s deductible. So why not put it into an account and get the deduction. Because there’s no limits on income or any thresholds. Let it grow tax free. And then save it for future years, where you know you’ll benefit from taking it out tax free for medical expenses.

There is a lot of math here. A lot going on. We can help you. Please let us know how! Wondering how this affects your financial future? Schedule a call with Michelle and Steve to discuss your portfolio today.

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Financial Design Studio, Inc.

We are financial advisors in Deer Park and Barrington, IL. A team with a passion for helping others design a path to financial success — whatever success means for you. Each of our unique insights fit together to create broad expertise, complete roadmaps, and creative solutions. We have seen the power of having a financial plan, and adjusting that plan to life. The result? Freedom from worrying about the future so you can enjoy today.