The Best Retirement Account You Don't Know Of
When it comes to retirement plans, we all have a little bit set aside. It’s always a good idea to have a nest egg, but you need to pick the best savings account in order to maximize the growth of that egg. For this reason alone, you should opt for a health savings account - HSA.
An HSA is an account that has all the best features and none of the taxes that are associated with the savings account. With an HSA, you get to experience growth without taxes, make deposits without being charged a tax as well as get access to your money without having to pay a tax on it. With an HRA, you get to save up for any current or future medical issues that you might have.
How Much Can You Save Up?
When it comes to the HSA, there is a limit to the total amount that you can deposit and accumulate in the account. However, even with the COVID pandemic affecting much of the economy in 2020, there have been some changes made that are for the better. Now, you can contribute the following amounts for your HSA in 2021:
- Single Coverage - $3,600
- Family Coverage -$7,200
These amounts are about a 1.5% increase from the previous year. A contribution of an additional $1,000 is allowable, provided that the individual is 55 years or older. Due to the reason that there are no taxes on these amounts, it is a rather attractive way to save money quickly.
How Does One Qualify for It?
You need to be eligible for the HSA to utilize it properly. The main requirement is that you must have an HDHP – High Deductible Health Plan. The following are the criteria you must meet in order to successfully qualify for the HAS:
Annual deductible Health Insurance:
Single Coverage - $1,400
- Maximum out-of-pocket amount - $7,000
Family Coverage - $2,800
- Maximum out-of-pocket amount - $14,000
Moreover, you must ensure that you are not covered by a different plan for health insurance. You cannot be on Medicare and you cannot be a dependent on anyone’s tax returns. Nonetheless, if you are utilizing an HSA, you need to ensure that the money is being used for your medical bills alone.
Things to Keep in Mind
Keep in mind that the HSA is strictly meant for health expenditures and if you utilize the money for non-medical purposes, you have to pay an income tax and you will also be subjected to a 20% fine as penalty. However, once a person turns 65 years old, they no longer have to worry about that. The HSA will then function much like an IRA or a 401(k) plan and you can easily withdraw your funds for any purpose. You won’t have to deal with a penalty fine, but you will have to pay an income tax on it. This means that even if you end up using more than you save, there is still a yearly rollover of funds and you can easily invest the money you save with ease as well.