Tuesday, June 30, 2020
Health Savings Accounts (HSAs) are a great way to reduce health care care costs. Also, HSAs can positively affect your estate plan because its funds grown on a tax-deferred basis. An HSA is similar to a traditional IRA or 401(k) plan as it is a tax-advantaged savings account funded with pretax dollars. Funds can be withdrawn tax-free to pay for a variety of qualified medical expenses.
In order to receive these benefits, an HSA must be paired with a high-deductible health plan (HDHP). In the wake of COVID-19, a recent benefit of the HDHP has emerged; that benefit being that they can cover the costs of coronavirus testing and treatment before deductible are met without risking the plan's status as an HDHP. Further, plan participants who have HSAs may continue contributing to their existing accounts.
In order to make HSA contributions, you may not be enrolled in Medicare or covered by any non-HDHP insurance. If you enroll in Medicare, you will no longer be eligible for an HSA, but you may still make contributions for the time you were eligible before going to Medicare.
There are two ways that HSAs can lower health care costs: by reducing your insurance expense as HDHP premiums are substantially lower than those of other plans, and allowing you to pay qualified expenses with pretax dollars. Also, any funds remaining in an HSA may be carried over from year-to-year.
Except for funds used to pay medical expenses, an HSAs account balance continues to grown on a tax-deferred basis indefinitely, providing additional assets for your heirs. However, the tax implications of inheriting an HSA differ substantially depending on who the beneficiary, so it is important to consider your beneficiary designation.
Opening and contributing to an HSA offers great tax-advantaged options that (1) reduce cost and (2) provide estate planning benefits. If an HSA sounds appealing to you, you should speak with your estate planning advisor for more information.
See Joseph R. Marion, III & David T. Riedel, HSAs: Understanding The Health Savings And Estate Planning Benefits, Adler Pollock & Sheehan P.C., June 22, 2020.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.