As you may be aware, the 2019 federal income tax filing deadline was extended from April 15, 2020 to July 15, 2020. Additionally, the deadline to make 2019 deductible contributions to your Health Savings Account (HSA) and your Individual Retirement Account (IRA) have been extended. Taxpayers have until July 15, 2020 to make 2019 tax-deductible contributions to their HSA or IRA accounts.
A couple of reminders:
- HSA holders can choose to contribute up to $3,500 for an individual plan or $7,000 for a family plan for tax year 2019.
- HSA holders that were 55 or older during tax year 2019 can contribute an additional $1,000 as a catch-up contribution to the limits noted above.
- Traditional IRA contribution limits for the 2019 tax year are $6,000 per taxpayer.
- Traditional IRA holders can contribute an additional $1,000 as a catch-up contribution if the taxpayer was 50 years or older during the 2019 tax year.
If you have already filed your return and believe you were qualified to make a tax-deductible HSA or IRA contribution for 2019 please contact your tax professional for guidance.
Triple Tax Benefit of HSAs
HSAs are one of the most appealing savings plan options available from a tax perspective. HSAs can be used to reduce taxable income today, build wealth tax-free over time, and potentially avoid tax on appreciated investments entirely.
- Contributions reduce taxable income dollar-for-dollar up to the annual contribution limit.
- Contributions can be invested and grow tax-free.
- Distributions are tax-free when used for qualified medical expenses.
These three tax benefits are unique to HSAs, as no other investment vehicle offers all three tax benefits. Many clients may not realize the funds in an HSA can be invested in the stock market, as not all custodians offer HSA accounts with this capability. Additionally, there are not required minimum distributions as with most other retirement accounts, which sometimes result in unwanted tax liabilities in retirement. The one draw-back of an HSA is that distributions used on non-qualified medical expenses are subject to a 20% penalty. However, if you are over age 65, the 20% penalty does not apply, which effectively turns the HSA account into the equivalent of a traditional IRA or 401k not subject to required minimum distribution rules.
Trinity Ellis, CPA
Jimmy Wade, CPA