Wednesday, November 25, 2020

A Rare Triple Play: The Health Savings Account (HSA)

Business owners, self-employed professionals and anyone else who has the flexibility to choose between a variety of health insurance plans might consider enrolling in a High-Deductible Health Plan (HDHP) that is compatible with a Health Savings Account (HSA).

A health savings account is a powerful tax savings and retirement tool

Small Moves Add Up Over Time

Optimal management of your finances involves not only doing the big things right, but also doing many small things right as well. Lots of small things done well consistently can compound into a massive improvement over time. One of these small things might be setting up and funding an HSA for yourself.

- Advertisement -

With Open Enrollment for 2021 health insurance now under way, many are considering whether to enroll in an HSA-compatible health insurance plan so they can take advantage of the significant tax benefits of an HSA. (HSAs are permitted only for those enrolled in HSA-compatible HDHPs.)

HSAs Offer Formidable Benefits

We view HSAs as very powerful accounts because they offer the following triple-play of tax advantages that no other type of account can match:

  1. HSA contributions are fully tax deductible. 2021 contribution limits are $3,600 for individuals and $7,200 for families.
  2. HSA account assets grow tax-free.
  3. HSA distributions used for qualified medical expenses are also tax-free.

These tax attributes of HSAs make them, dollar-for-dollar, the most powerful retirement savings vehicles, ahead of Roth IRAs (for which contributions are made post-tax) and IRAs and 401(k)s (from which distributions are taxed).

Build A Nest Egg For The Future

Many people use their HSA funds to pay for current-year medical expenses. We think HSA owners should make the maximum contribution each year, however—then consider covering their medical expenses with funds from outside their HSAs. This way, their HSA assets can be retained in their powerful HSA accounts and invested for the distant future. And by contributing regularly to an HSA each year, HSA owners will not only reduce their current-year tax bills, but also build a handy account that they can tap, tax-free, for medical expenses during retirement.

People using HSAs as savings/investment vehicles should note the following:

  • First, withdrawals are only tax-free if used for qualified medical expenses.
  • Second, many HSA custodians levy fees on transactions, so costs can add up.
  • Third, the penalty for withdrawals not used for healthcare expenses prior to age 65 is 20% versus a 10% penalty on IRA withdrawals prior to age 59 1/2. Withdrawals would also be taxed as ordinary income.

As always, when it comes to making financial moves, what’s right for one person’s situation may not be right for someone else. However, using an HSA as an investment vehicle, given its trio of tax advantages, is certainly worth considering.

If you would like to see if we can help you with your situation, schedule a call with us:


Support Coronado Journalism

Your support will help to expand coverage of the issues, people and events happening in our Coronado community. Local news matters!
Support The Coronado Times

Keep it civil. Comments may be removed or closed if they violate Terms of Service.



Election Integrity

Submitted by Frank CorahIt is vitally important in this contentious Presidential election that the American people, regardless of their political persuasion, trust the election...

Fate of The Ferry Landing Marketplace at Risk

Submitted by Marilyn FieldBad news for those who appreciate the quirky charms of The Ferry Landing Marketplace buildings: their fate is hanging in the...

This Isn’t Coronado

Submitted by Carolyn RogersonRecently Coronado has been in local news and national social media for a sad, shocking reason. Those who would not like...

Nick Kato for CUSD School Board 2020: Video Interviews

Submitted by Nick KatoHello Coronado! I’ve collected the various video interviews I’ve done with notable and well-respected members of the community. I’ve been so...


Mel Moore (1929-2020)

He served his country proudly in Korea and Vietnam as a pilot in the US Navy. In 1967, at the age of 38, Captain...

Health Officials Urge You to Keep Holiday Celebrations Small, Short and Safe

Given the surge in San Diego County cases and hospitalizations due to COVID-19, County health officials are urging San Diegans to keep Thanksgiving and...

Giving Thanks by Giving Back – Thanksgiving Meals to the Monarch School (video)

They are giving thanks by giving back… Coronadoans are providing 600 Thanksgiving meals today across the bridge to the kids of the Monarch School,...

Council Covers Parker Pump Station, Winn Room Upgrade, and Port Master Plan and More

The City Council meeting on November 17 started out on a positive virtual note with winners from the City of Coronado Recreation and Golf...

Nighttime Curfew Ordered for San Diego County, and Others in Purple Tier

The state has issued a limited curfew for all counties in the Purple Tier of its COVID-19 risk assessment system, which includes San Diego County.The curfew...