Self-directed Health Savings Accounts Offer Flexible Savings and Tax Advantages

Published on December 5, 2017

A health savings account (HSA) is another type of tax-advantaged, retirement plan that can be self-directed, and comes with multiple tax advantages. In addition to enabling owners to save pretax dollars and use them to pay for more immediate medical expenses, they can also be used as a savings vehicle for future medical costs following retirement. Given the rise of high-deductible healthcare plans in the United States, HSAs are growing in popularity; in fact, the number of these accounts has increased 16 percent year over year; raising the number of existing HSAs to 21 million HSAs. Assets in these accounts rose this year to more than a whopping $42 billion. The growth of HSAs is partially attributed to more individuals carrying high-deductible health plans (HDHPs); people with these health plans can put pretax dollars into HSAs for medical expenses, similar to flexible spending plans with one major exception: HSA contributions can roll over year after year (no “use it or lose it”), so that savings can accrue if the money is not needed for immediate medical costs.

So, how does this work?

Essentially, money is not taxed going into the account, earnings increase tax free, and—if the money is used for qualified medical expenses—it is not taxed. Qualifying for an HSA To open a HSA you must:

• Be enrolled in a high-deductible health plan (HDHP) – minimum deductible of $1,350 for a single, $2,700 for a family; maximum out-of-pocket expense of $6,650 and $13,300, respectively.
• Have no other health coverage, including Medicare.
• Not be claimed as a dependent on someone else’s tax return.

In 2018, eligible workers will be able to contribute up to $3,450 to an HSA for an individual and $6,900 for a family. Catch-up contributions for people 55 and older are an extra $1,000 annually; employers may contribute as well. Note that if employers contribute to the plan, they still must stay within contribution limits. With health plans changing for 2018, it’s always best to review your plan and any changes that are coming to confirm you are eligible.

Tax-free savings now, tax-free withdrawals later

Before you reach retirement age, the funds in your health savings account may be used for dental care, eye care, doctor visits, medical procedures and/or drugs (prescription and over the counter). Once you reach full retirement age, you may withdraw funds for any purpose; if the funds are not used for qualified medical expenses, the withdrawals are taxed but there is no penalty. You may still use accumulated funds for many medical/health-related expenses, including certain Medicare premiums. In addition, there are no required minimum distributions.

Self-direct your HSA

As with any self-directed plan, you can include alternative assets within your health savings account at Next Generation. If you’d like to boost your savings with nontraditional investments such as real estate, precious metals, private stock, or commodities (to name a few), simply send your instructions to Next Generation Trust Company, which administers self-directed retirement plans including HSAs. We’ll conduct a full transaction review, execute your instructions, and perform account administration and transaction processing through our sister firm, Next Generation Services. As always, it’s important that you consult your financial planner or tax advisor to find out how an HSA can be of benefit to you now and in the future.

If you want to talk about self-directing the funds within your HSA, speak to the specialized team at Next Generation Trust Company. You can contact us about self-directed retirement accounts and HSAs at 1-888-857-8058 or Info@NextGenerationTrust.com. If you’re ready to open up an account, you’ll find everything you need here.