Health Savings Accounts, or HSAs, are increasingly used in California and nationwide. At the end of 2016, there were about 20 million of these accounts in operation, which was a 20 percent rise from the year before. There are big tax benefits that may motivate some people to open an HSA as part of an estate planning program, but these are usually persons who are relatively healthy and wealthier than most.
These accounts work by putting money into the account pre-tax, the money then grows tax-free and the distribution of the money is also tax-free if it is used for qualified medical expenses. For many, a high deductible health plan, combined with an HSA, is the only health benefit that their employer offers. To own an HSA, one must be enrolled in a high deductible health plan.
Because the money accrues tax-free, it can be a powerful long-term tax benefit. That does not apply, however, if the funds are withdrawn. Thus, if one could afford to pay for medical expenses with cash on hand, there is a great benefit to retaining the money in the HSA and letting it grow. It is quickly evident, therefore, that such plans do not help those who are poor or in the working-class lower economic rungs of the ladder.
If a California resident is interested in an HSA for independent estate planning and not through the employer, smart research will be necessary to distinguish the best deals available. There are many twists that must be considered such as the fact that one cannot contribute after Medicare kicks in. These are complex contracts, with an overlay of substantial regulations, that are best purchased as part of an estate planning program overseen by one’s financial expert and an experienced estate planning attorney.
Source: marketwatch.com, “10 hidden pitfalls of health savings accounts“, Andrea Coombes, June 8, 2017
