Your HSA can help you cover qualified emergency, dental, vision, and family medical expenses. "You know your contributions are going in and being immediately invested," Freeman said. Updated on MaKey takeaways: Health savings accounts (HSAs) make the cost of everyday healthcare items tax deductible by using your pretax dollars to pay for them. Stash any remaining dollars into your retirement plan. Got extra dollars to save? Max out your HSA and invest it for the long term. "In the years you have excess funds or you didn't have to touch the account, start investing the money," Freeman said. Cash left unused in your HSA rolls over into the future. Save at least enough in your HSA to meet your annual deductible. How Much Can I Contribute To My HSA In 2019 As you plan, know what is an HSA. The most common match formula employers use is 50 cents on each dollar on the first 6% of pay, according to Vanguard. If you withdraw money for any purpose other than qualified expenses, you will have to pay income tax on that amount. Here's how you can fund both your 401(k) and HSA, according to Debbie Freeman, CPA and director of financial planning at Peak Financial Advisors in Denver.Ĭontribute at least enough to get the match on your 401(k). More from Personal Finance: How to find out how financially prepared you are to retire Don't botch this key tax deadline Tariffs on these products will dent your wallet That said, you don't have to choose one account over the other. If you use your HSA to pay for expenses that are not qualified you will have to pay income tax and a 20 percent penalty on the non-qualified purchase amount. "If you know you're using the money for those medical expenses, the HSA is much more attractive than putting the money in the 401(k)," said Eric Bronnenkant, CPA and head of tax at Betterment. But if you pull the money out for other reasons, you'll pay income taxes and a 20% penalty that's in effect until you're 65. Meanwhile, distributions from an HSA are tax-free if they're for qualified medical expenses. When you withdraw money from this retirement account, the distribution is subject to income taxes, plus a 10% penalty if you're under 59½. You can also use the funds to reimburse yourself for any qualified medical expenses that your insurance didn’t cover and you had to pay out of pocket. While 401(k) plan contributions avoid federal income taxes, they still face the FICA tax. See IRS.gov/Newsroom/IRS-Cost-of-Home-Testing-for-COVID-19-Is-Eligible-Medical-Expense-Reimbursable-Under-FSAs-HSAs. A Health Savings Account allows individuals to pay for current health expenses and save for future qualified medical expenses on a pre-tax basis. The contributions you make to a traditional 401(k) plan aren't subject to the same tax treatment as your HSA savings. The cost to diagnose COVID-19 is an eligible medical expense for tax purposes, which means the cost of home testing for COVID-19 for you, your spouse, or your dependent (s) may be paid or reimbursed from an HSA. Personal Loans for 670 Credit Score or Lower Personal Loans for 580 Credit Score or Lower Best Debt Consolidation Loans for Bad Credit
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