As the end of the year approaches, human resources departments around the country are once again notifying their employees about the upcoming open enrollment season for health insurance. During this period, individuals will have the opportunity to acquire health insurance or switch their existing plans. You may notice a high-deductible option among your provider's suite of products and wonder why anyone would choose to pay more out of pocket before benefiting from insurance. High-deductible health plan participants typically pay lower premiums, but they're also the only ones who may contribute to a health savings account.
Health savings accounts, or HSAs, provide significant tax benefits to compensate for the higher deductibles their holders have to pay. An HSA is a self-directed health plan with a portfolio of investments, much like an IRA or another such retirement plan. Your self-directed HSA can hold alternative assets like real estate, precious metals, or promissory notes, and their earnings can be distributed tax-free as long as they’re applied toward qualified medical expenses (including your deductible). Such distributions can either cover your medical bills directly or reimburse you for payments you’ve previously made (as long as your first HSA contribution was made prior to incurring the expense). Furthermore, contributions to an HSA may be deducted from your income for tax purposes, so you’ll garner short and long-term tax benefits while addressing the healthcare costs that almost everyone will encounter at some point.
Per Revenue Proclamation 2018-30, HSA holders will have the opportunity to make higher tax-deferred contributions in the 2019 tax year:
The $1,000 catch-up contribution option for HSA holders age 55 or above will still apply. Because these deposit limits are independent from those of other retirement plans, you would still be able to make maximum allowable contributions into your self-directed IRA or 401(k). Minimum deductibles that qualify as "high" ($1,350 for single coverage and $2,700 for family coverage) remain unaffected as well.