A few weeks ago, we shared our Tax Season Infographic that listed account contribution deadlines before Tax Day. While retirement accounts like IRAs and Roth IRAs are pretty well known, you may be less familiar with Health Savings Accounts (HSA). Let’s dive into what they are and whether or not you could benefit from having one.
Navigating healthcare costs certainly isn’t straightforward. Good news — there are financial tools that may help, and most people don’t even know about them.
For those looking to help manage the financial impact of healthcare, a Health Savings Account (HSA) may be just the ticket.
What exactly is an HSA?
It’s a savings account that lets you set aside pre-tax money to pay for qualified medical expenses. With the goal of using untaxed dollars to pay for deductibles, copayments, and some other expenses, that could help lower your overall healthcare costs.
HSA Tax Benefits
A large draw for many are the tax benefits inherent to HSAs:
Contributions through an employer are always pretax
You can invest the funds after your account balance reaches a certain level
Distributions for qualified health expenses aren’t taxable
Unlike a Flexible Spending Account (FSA), which is funded with pretax dollars but must be used by a specific deadline, HSA contributions can remain in your account to be used for future medical bills at any time. In short, this means there is no “use it or lose it” penalty.2
Keep in mind that if you spend your HSA funds on non-qualified expenses before age 65, you may be required to pay ordinary income tax as well as a 20% penalty. After age 65, you may be required to pay ordinary income taxes on HSA funds used for non-qualified expenses. HSA contributions are exempt from federal income tax; however, they are not exempt from state taxes in certain states.
You must be enrolled in an HSA-eligible health plan. And to contribute you must:
Not be enrolled in a health plan that is not an HSA-eligible plan, such as a full-purpose health care flexible spending account (FSA)
Not be enrolled in Medicare
Not be claimed as a dependent on someone else's tax return
While the open enrollment period for Marketplace Health Insurance is closed for the year, remember that a change in life events or income may make you eligible to apply.
HSA Contribution Limits
HSA contribution limits are adjusted annually for inflation. For 2023, the self-only contribution limit is $3,850 or $7,750 for families. This is a $50 increase for individuals and a $100 increase for families from 2022. The contribution limit refers to contributions from both employers and employees (or family members).
How to use your HSA
The IRS or your HSA provider are great sources when getting started. For example, the IRS recently issued a reminder that at-home covid tests, face masks, and sanitizing wipes can all be purchased, or qualify for reimbursement, through an HSA. In addition, the IRS offers an interactive assessment tool that can take the guesswork out of what qualifies as an HSA-friendly expense.4
HSA contribution deadline
You generally have until the tax filing deadline to contribute to an HSA. For tax year 2022, you can make contributions up until April 18, 2023.
Still have questions about how these accounts work? Let’s have a conversation during your review meeting if you’re curious how this tool could work for your personal financial plan. We can point you toward resources that will help you make informed decisions about your healthcare.
Your Eagle Wealth Team
P.S. If you already have an HSA and didn’t spend very much, check out 40 Actually Delightful Things to Buy With Your Leftover HSA Fund.
Our Spring COCC Retirement Workshop Starts Soon
Do you have a friend or relative who could use some financial planning help? We have a solution for pre-retirees and retirees who want to learn more about the retirement landscape and get organized. For over 13 years we’ve been volunteering at COCC, partnering with them on financial planning classes. We’re big believers in the power of education and this is one of the ways we’re able to give back to our community.
This spring, we’re teaching our next in-person class at Central Oregon Community College. They’re filling fast so have your friends check out our website for details.
Personal Retirement Analysis Workshop:
3/7 and 3/9 from 6:00 pm – 8:00 pm, plus a one-on-one third class with a financial planner.
4/25 and 4/27 from 6:00 pm – 8:00 pm, plus a one-on-one third class with a financial planner.
5/16 and 5/18 from 6:00 pm – 8:00 pm, plus a one-on-one third class with a financial planner.
**These courses are not intended for current clients. The planning we’ve done with you through personal meetings far exceeds what’s possible in a classroom of students. Please remember though, if you’ve had any changes in your life that may affect your current plan, please call us so we can discuss and make any necessary updates.|
The Week on Wall Street
Concerns over a firmer monetary policy were heightened by fresh economic data, touching off a climb in bond yields and a slide in stock prices last week.
The Dow Jones Industrial Average skidded 2.99%, while the Standard & Poor’s 500 dipped 2.67%. The Nasdaq Composite index sagged 3.33% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, retreated 1.23%.1,2,3
Stocks struggled last week, buffeted by growing fears of further Fed tightening and disappointing forecasts from two major retailers that called into question the consumer's health. The release of the minutes from the Federal Open Market Committee’s (FOMC) last meeting did little to assuage investor worries. Reflecting these concerns of a more aggressive Fed was that by Thursday, traders were pricing in a 27% chance that the Fed might lift rates by a half-percentage point at its next meeting, far above the 1.3% chance just one month ago.4
Stocks took another leg lower on Friday following the release of January’s Personal Consumption Expenditures (PCE) price index, which showed hotter-than-expected price increases and more robust consumer spending.
Minutes from the last FOMC meeting indicated that nearly all members agreed with February’s quarter-point rate increase, though some would have supported a 50 basis point rate hike to move quicker towards the Fed’s target range. While the minutes suggested another 25 basis point hike is likely at their next meeting, investors remain anxious that more recent economic data may prompt a 0.50% hike instead.5
The minutes stressed that inflation was still too high. However, members diverged on the economy, with some members finding the risk of recession elevated. In contrast, others feel the Fed may engineer a soft landing or avoid a recession altogether.6
THE WEEK AHEAD
KEY ECONOMIC DATA
Monday: Durable Goods Orders.
Tuesday: Consumer Confidence.
Wednesday: Institute for Supply Management (ISM) Manufacturing Index.
Thursday: Jobless Claims.
Friday: Institute for Supply Management (ISM) Services Index.
Source: Econoday, February 24, 2023
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.
COMPANIES REPORTING EARNINGS
Friday: Workday, Inc. (WDAY).
Tuesday: Occidental Petroleum Corporation (OXY), Target Corporation (TGT), AutoZone, Inc. (AZO), Ross Stores, Inc. (ROST), Agilent Technologies, Inc. (A).
Wednesday: Salesforce, Inc. (CRM), Lowe’s Companies, Inc. (LOW), Dollar Tree, Inc. (DLTR).
Thursday: Broadcom, Inc. (AVGO), Costco Wholesale Corporation (COST), Best Buy Co., Inc. (BBY), Marvell Technology, Inc. (MRVL), Dell Technologies, Inc. (DELL).
Source: Zacks, February 24, 2023
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.
Disclosures and Footnotes
Any companies mentioned are for informational purposes only, and this should not be considered a solicitation for the purchase or sale of their securities. Any investment should be consistent with your objectives, time frame, and risk tolerance.
1. The Wall Street Journal, February 10, 2023
2. The Wall Street Journal, February 10, 2023
3. The Wall Street Journal, February 10, 2023
4. The Wall Street Journal, February 7, 2023
5. IRS.gov, October 20, 2022
Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
Please consult your financial professional for additional information.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG is not affiliated with the named representative, financial professional, Registered Investment Advisor, Broker-Dealer, nor state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security. Copyright 2022 FMG Suite.