Health savings accounts (HSAs) continue to grow in popularity nationwide. According to a May 2012 report from America’s Health Insurance Plans, more than 13.5 million Americans are currently using HSAs partnered with high-deductible health plans – an 18 percent increase from last year’s report. However, many have yet to fully realize the tax advantages and long-term financial benefits of these accounts. Dennis Triplett, CEO of UMB Healthcare Services, a division of UMB Financial Corporation (NASDAQ: UMBF), provides the following perspective on key tax and financial planning considerations for HSA account holders:
There are three primary ways HSA account holders save on taxes: tax-deductible deposits, tax-free earnings and tax-free withdrawals. Unlike other tax-advantaged spending accounts, HSAs also have the ability to accrue funds from year-to-year, and many have investment options, similar to other retirement savings vehicles.
“We continue to see strong adoption rates for HSAs, but there is room for education on the financial benefits of these accounts,” said Triplett. “Despite the tax advantages, many are not meeting the yearly contribution max or realizing the true potential of year-over-year growth in these accounts. For example, looking at account balances from May 2011 through May 2012, we saw that our account holders had an average account balance of $1,917 (up from $1,710 last May), but far below the yearly contribution maximum.”
According to the Internal Revenue Service, the 2013 contribution limits will be $3,250 for an individual and $6,450 for a family – a slight increase from 2012 limits. Those ages 55 or older have the option for an additional $1,000 catch-up contribution.“Health care costs are a major consideration for those planning for retirement, so it is important to consider HSAs for more than your current year expenses,” said Triplett. “We encourage account holders to consider the long-term financial benefits of these accounts that ultimately help individuals financially prepare to manage health care costs later in life.”