A Tax Deduction Millennials Often Forget
Are you working your first career job? Are you under the age of 35 and healthy? Then this tax deduction is one that you may have heard of but forgotten about: HSA contributions!
HSA stands for Health Savings account. These accounts are tax sheltered vehicles the government allows for citizens to pay for qualified medical expenses. The great thing about HSA’s are that you are allowed a tax deduction for contributions up to $3,600 annually as of 2021.
Most people who fall into the ‘millennial’ age range still have good health. It is for this reason that accounts associated with health take a backseat in our minds. You’re probably participating in your employers group health plan coverage which provides you peace of mind about any health expenses you may incur from time to time. While you’re not focused on your health, the income you’re generating and the taxes that you’re paying for those earnings is your focus. This is where HSA contributions key in on the proverbial ‘two birds with one stone’.
There are a few key qualifications to be eligible to contribute to an HSA:
Have health insurance
Have a high-deductible
$1,400 annually for individuals
$2,800 annually for families
Have no other health coverage that is NOT high-deductible
Two Birds, One Stone
Set up automatic HSA contributions each month to help keep your monthly budget in check. When you file your taxes for the year be sure to deduct the contributions that you made which lowers your taxable income! Not only are you lowering your current taxable income but the investment earnings inside of HSA accounts are tax free! If you experience favorable returns while continuing to sock away money and keep your good health, years down the road you could have an extra nest egg to pay for medical expenditures as you age!
Just think, after 4 years of good health and no medical expenses you could save as much as $14,400. If you apply a 5% annual compounding return to these contributions, this could be worth as much as $19,800. That’s nearly $20,000 you could use for a medical emergency years down the road. This could even reduce the 6 month savings amount you need for smart financial planning.
If you need advice on opening up a HSA account and or the types of investments that would be prudent to own inside of an HSA please reach out to our team!
