Health Savings Accounts (HSA) Cheat Sheet
Overview
Health Savings Accounts (HSAs) provide a tax-advantaged way to save for medical expenses. They offer triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified expenses.
2025 HSA Contribution Limits
| Coverage Type | Contribution Limit | Catch-Up (Age 55+) |
|---|---|---|
| Individual | $4,300 | +$1,000 |
| Family | $8,550 | +$1,000 |
Eligibility Requirements
- Must be enrolled in a High Deductible Health Plan (HDHP).
- Cannot be enrolled in Medicare.
- Cannot be claimed as a dependent on someone else's tax return.
Tax Benefits of HSAs
- Tax-Deductible Contributions – Reduces taxable income.
- Tax-Free Growth – Earnings from investments grow tax-free.
- Tax-Free Withdrawals – No taxes on qualified medical expenses.
Qualified Medical Expenses
- Doctor visits & hospital care.
- Prescription medications.
- Dental & vision expenses.
- Long-term care services.
- Some over-the-counter medications.
Non-Qualified Withdrawals
- Subject to income tax + 20% penalty if under age 65.
- No penalty after age 65, but withdrawals are taxed as income.
Tax Planning Strategies
- Maximize Contributions – Reduce taxable income while saving for healthcare.
- Invest HSA Funds – Grow savings tax-free for future medical expenses.
- Use for Retirement Healthcare – HSAs can cover Medicare premiums after age 65.
Common Pitfalls & How to Avoid Them
- Not Using Funds for Qualified Expenses – Leads to penalties.
- Ignoring Contribution Limits – Excess contributions may be taxed.
- Failing to Invest HSA Funds – Misses out on tax-free growth.
Tools & Resources
- IRS guidelines on HSA tax benefits.
- Tax calculators for estimating savings.
- Financial advisors for personalized tax strategies.