April 15 always seems to sneak up, and surely this year will be no different.…
How to Invest in Your Health in 2022
How to Invest in Your Health in 2022
Healthcare is one of the essential parts of life’s financial and personal journey. Many have not yet utilized all the financial tools that are available to you. We’re here to help you navigate your employee benefits packages to ensure you are maximizing all of your employee benefits including Health Savings Accounts and Flexible Spending Accounts.
Health Savings Accounts (HSAs)
An HSA gives you a tax-exempt savings account to pay for your healthcare expenses. The money you don’t spend in one health plan year rolls over to the next. You are also enrolled in an HDHP (High Deductible Health Plan), in which your insurance company will only pick up the tab for significant healthcare expenses (including types of preventive care, maternity care, and pediatric primary care).
A large draw for many are the tax benefits inherent to HSAs:
- Contributions through an employer are always pre-tax
- You can invest the funds after your account balance reaches a certain level
- Distributions for qualified health expenses aren’t taxable
Unlike a Flexible Spending Account (FSA), which is funded with pre-tax dollars but must be used by a specific deadline, HSA contributions can remain in your account to be used for future medical bills at any time. In short, this means there is no “use it or lose it” penalty.1
While many people save money in an HSA because they know they’ll have healthcare expenses coming up, plenty of people also invest in an HSA with the goal of leaving their money alone and letting it grow. You’ll save money on taxes when you contribute, and your money grows tax-free. If you’re able to leave your HSA money in your account until age 65, then you can use your funds however you want.
Keep in mind that if you spend your HSA funds for non-qualified expenses before age 65, you may be required to pay ordinary income tax as well as a 20% penalty. After age 65, you may be required to pay ordinary income taxes on HSA funds used for non-qualified expenses. HSA contributions are exempt from federal income tax; however, they are not exempt from state taxes in certain states.
HSA Contribution Limits Are Adjusted Annually for Inflation
For 2022, the self-only contribution limit is $3,650 or $7,300 for families. This is a $50 increase for individuals and a $100 increase for families from 2021. The contribution limit includes contributions from both employers and employees (or family members).
These adjustments are rounded to the nearest $50 to account for inflation rates, which are determined using the Consumer Price Index for All Urban Consumers.2
How to Use Your HSA
If we’re doing your taxes, we will discuss the reimbursements you may be eligible for. The IRS recently issued a reminder that at-home COVID-19 tests, face masks, and sanitizing wipes can all be purchased or qualify for reimbursement through an HSA. The IRS and your HSA are good sources of information as well, the IRS offers an interactive assessment tool that can take the guesswork out of what qualifies as an HSA-friendly expense.3
In the traditional insurance plan, you pay high premiums upfront; in the HDHP, you pay lower premiums and essentially assign the savings to your own healthcare expense account.
Flexible Spending Accounts (FSAs)
With an FSA, you deduct pre-tax dollars out of your salary to pay qualified medical expenses. You can designate an FSA for your healthcare expenses or those of a dependent. But most FSAs are “use it or lose it”—at the end of the plan year, the money left in the account doesn’t roll over into the following year. Employees tend to minimally fund FSAs, although they can be used in conjunction with HSAs.
Wondering whether you’re eligible to contribute to an HSA or FSA? Let’s talk! We can review your benefits package to see if your employer offers an HSA or FSA and discuss how these may help you save in taxes and medical expenses from now into the future.
WE’RE HERE TO HELP
It’s a new year, lets meet to update your financial plan and goals for the year, please call or email us at (410) 823-5442 or [email protected].
Chesapeake Financial Advisors is a fee-only financial planning, investment advisory and tax planning firm with offices in Towson, Columbia, and Frederick, Maryland.
For disclaimer, please follow our link below: