Health savings account strategies for the yearend tax benefits

Health savings accounts are a good way to avoid paying hefty taxes on your hard earned income. The full one hundred percent of the deposit that you put in the health savings account is deductible on the federal income taxes. Only four states in the United States do not make HSA contributions tax deductible on state income taxes. The rest of the states allow tax deduction. Hence if you want to reduce your tax burden, the HSA is the best place to park the money. 

There is several time tested tax saving strategies that one can follow while funding your health savings accounts. We shall discuss three very useful ones. 

The first strategy is not to put any money in the account. Start putting money only when you have to spend something for any medical complications. This will allow you to legally do money laundering! In other words, all the money that you spend for medical expenses will be tax free. The strategy involves depositing money into the account and then withdrawing it immediately to make medical expenditure. This is a strategy best employed when you want to keep as much fluid cash and reduce your cash outlay per annum as much as possible. 

The second strategy is to completely fund the account or put as much as you can inside the account based on your budget. Only take money out when you have medical expenditures to cater to. And the rest of the money will grow without being taxed. This is a strategy which will allow you to grow your funds without being taxed. And the rest of the money will be available to pay for your medical expenses which are not covered by your insurance plan.

The third strategy is to fully fund your HSA. But do not use the HSA to make payments for medical complications. Pay for all of this through a non-HSA account. You can always reimburse your self at a later date for all the expenses that you have incurred. This is a strategy that will not only allow you to maximize your tax deduction but will also allow you to maximize your HSA’s tax deferred growth. You can get reimbursed for all your medical expenditure later.

Any growth in your account is always tax deferred too. Take time to understand the various investment options that is in the market. Health savings accounts are the best way to save on tax without breaking the law. If you are a reasonably healthy person, this is the best way to cater to your health needs without taking an insurance policy. An insurance policy can eat away a large portion of your earnings and then you will have nothing to show for it. But a health savings account can provide for you later on in your retirement. It is something that is more of a tax free investment than a medical security. But it behaves as both and hence is turning out to be very attractive these days.