The Health Savings Account (HSA), which goes hand in hand with a High Deductible Health Plan (HDHP) has many wonderful benefits—but one especially amazing one is the Triple-Tax Advantage. It is a heavily touted feature that is worth taking a closer look at. Let’s break down what the three tax advantages are for your HSA:
1. Your Contributions to Your HSA are Tax-Free
Let’s say you sign up for an HSA through your employer. Once you start making contributions to your plan, one of the great features is that all your money goes in tax-free. How does this work exactly?
This happens through an automatic deduction on your paycheck. You select an amount that you would like withdrawn and your employer will deposit those funds directly into your HSA before taxes have been taken out. Basically, set it and watch the money grow in your account!
2. Your Money Grows in the HSA Tax-Free
All the time that you are contributing to your HSA, your money is growing tax-free. While you can use the money for qualified medical expenses during the year, you can also let it grow for your retirement.
3. You Can Withdraw Money From Your HSA Tax-Free
Normally, with retirement accounts, when you draw on the account, you need to pay taxes. However, when you make a withdrawal from your HSA, you can do so tax-free, as long as it’s for a qualified medical expense. You can pay for your current medical expenses or wait a few years to pay off your expenses.
As you can see, the Triple-Tax Advantage can equal a lot of savings in the long run.