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Why you might want an HSA: You could save a lot of money on taxes using this neglected account.

If you paid more taxes in 2022 than you anticipated, you may want to look into ways to lower your 2023 tax payment. There are other ways to reduce your tax obligation besides retirement contributions and charity contributions. Others could even contend they’re not the greatest method to go about it.

Another account that many American workers can access promises significant tax advantages you can take advantage of both now and in the future. But far too frequently, people disregard its existence. What you should know about it is as follows.

The triple tax advantage is unbeatable.

When you contribute to traditional retirement plans or when you take money out in retirement, you receive a tax reduction. HSAs, on the other hand, provide both. Similar to contributions to a 401(k) or traditional IRA, money placed into one of these accounts lowers your taxable income. And your income increases tax-free.

Also, as long as you utilise the money from your HSA withdrawals for medical costs, you won’t have to pay taxes on them. You may also take non-medical withdrawals from the account, but you will be taxed on them and subject to a 20% penalty if you are under 65.

Nonetheless, for those who refrain from making early withdrawals, the account is effectively just another retirement account with added benefits. With an HSA, you won’t have to worry about required minimum distributions (RMDs) in addition to tax-free medical withdrawals. From the year you turn 73 onward, the government will force you to begin taking these yearly withdrawals from almost all retirement accounts. You can hold onto your money until you’re ready to use it because HSAs don’t have them.

Yet not everyone can access it.

HSAs are a fantastic location to store your extra cash, but you must first confirm your eligibility. This entails having a family health insurance plan with a deductible of $3,000 or more for 2023 or an individual health insurance plan with a deductible of at least $1,500. If your health insurance doesn’t meet these requirements, you’ll have to limit your investments to conventional retirement funds.

If a person meets the requirements and has an individual health insurance plan in 2023, they may make an HSA contribution of up to $3,850. This year, families may contribute up to $7,750. In addition, persons 55 and older may increase the above restrictions by an additional $1,000.

If you don’t already have an HSA, you can open one with a lot of banks and brokers. The greatest option is to pick a business that would let you invest your money. If not, your money won’t grow significantly over time.

If you want to use the money from your HSA for retirement, try to avoid doing so. Save money for anticipated medical costs in a high-yield savings account, and keep extra cash on hand in an emergency fund that you may immediately access if necessary.

Before contributing to an HSA, you should also confirm its eligibility restrictions and contribution caps each year. If you deposit money into an HSA while you’re ineligible, you risk getting into trouble with the IRS. Furthermore, if you are not aware of increased contribution caps, you may lose out on the chance to save even more money for the future.

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