HSA Case Study

One of the most asked questions that we hear from clients is “how much should I save now for future medical expenses?” While the answer to this question varies based on a number of lifestyle factors, the method for saving money that is earmarked for future medical expenses usually includes contributing to an HSA. A Health Savings Account (HSA) is a very useful tool for putting aside money that is designated to covering future healthcare costs for yourself and your family. Essentially, an HSA is an account that you can contribute pre-tax dollars to for qualified medical expenses both now and in the future. These expenses can include prescriptions, doctor’s office visits, dental treatments, even surgical procedures, and more. In 2021, you can contribute $3,600 for yourself or $7,200 for your family. To be eligible to contribute, you need to be enrolled in a high-deductible health plan, not be covered by a spouse’s health plan, and not currently enrolled in Medicare. The real beauty of the HSA, is that your contributions can be invested in the stock market, just like an IRA or brokerage account. The HSA also has three major tax advantages over a traditional savings account.

  • Contributions to an HSA are tax-deductible.
  • Your invested dollars can grow tax-free, meaning no capital gains taxes on your profits and…
  • Withdrawn funds are income tax-free, so long as they are used for qualified medical expenses

After the age of 65, you can use your HSA money to supplement your retirement income. At this point, the HSA will act like an IRA in that you can withdraw the funds (even for non-medical expenses) without incurring any tax penalties. However, you will still need to pay income tax on the distribution, just like an IRA. We generally recommend keeping a small amount of money in an HSA to help alleviate any unexpected medical expenses. Many banks and online financial institutions allow you to setup an HSA. Give us a call if you would like to learn more about how an HSA can be beneficial to your overall financial plan.

 

 

 

The Pitti Group Wealth Management is not a legal or tax advisor. Be sure to consult your own tax advisor and investment professional before taking any action that may involve tax consequences.

Charitable Contributions Case Study

Colleen, who’s 73 years old and is accustomed to donating to her favorite charity – She would normally write a check for $20,000 a year to the charity.  We informed her she could take money directly from her IRA and give it to the charity from the IRA and it would qualify as satisfying her Required Minimum Distribution.   Instead of paying tax on $20,000, then writing a check to the charity which in her case was no longer tax deductible, she saved thousands of dollars in taxes on $20,000 and the charity still receives their money.   If you or someone you know is over the age of 70 ½ and charitably inclined, have them speak to us to see if they qualify to make a Qualified Charitable Distribution from their IRA.

 

 

 
The Pitti Group Wealth Management is not a legal or tax advisor. Be sure to consult your own tax advisor and investment professional before taking any action that may involve tax consequences. This case study is hypothetical and for discussion purposes only. It is not intended to represent any specific return, yield or investment. Individual experiences referenced above may not reflect the future experience of any one client. The planning process discussed may not be suitable for your personal situation, even if it is similar to the example presented. Past performance is no guarantee of future results. Investing involves risk including the possible loss of principal.