Health savings accounts can save you a lot of money in the long run. There are some great tax benefits to putting in your own contributions as well. In this video from the Motley Fool Live Financial Planning series, longtime contributor and Director of Investment Planning Dan Caplinger discusses how you can make contributions to an HSA on top of what you put in as an employee via payroll deduction and some of the tax ramifications.
As Dan sees it, an HSA can be one of the best tax breaks available -- but not everyone qualifies, so be sure you do what you need to do in order to take advantage of HSAs if you can. In this clip, Dan responds to a Motley Fool member named Brian who asked, "If you are under 65 and you are retired, is it a good idea to contribute after-tax dollars to an existing HSA? Are there other options?"
Dan Caplinger: Brian, I think what we're talking about here is there's a couple of ways that most people get money into their savings accounts. One is if you are with an employer and the employer gives you a chance to make payroll deductions directly from your paycheck, then you are going to be able to elect that your employer will take care of it for you. That money will never show up in your income because it will be reflected on the W-2 at the end of the year, that you took money that was eligible for an HSA deduction, you put it in that HSA, they'll run the math for you so it never shows up in your taxable income in the first place.
If you have an HSA from somewhere else, say you aren't employed right now, or say that you don't get your health insurance from that employer. In that case. Yeah, you can make your own HSA contribution. It is still deductible. So you're still going to claim that deduction on your tax return, it's just you're going to be taking money from your own sources that potentially you already pay taxes on it and using that to fund the HSA.
I'm a big fan of HSAs. However you can get money into them is a win for me because you get triple tax benefits, you get the deduction upfront. You get no taxes on the income while it's in the HSA, and then you get no taxes on any of the withdrawals if you use them for qualified healthcare purposes. That's a triple win. I'm a big fan of triple wins. If you have a chance to do an HSA that's what I would suggest. Whether it comes after-tax from your own money or whether you do it through an employer on a pre-tax basis makes no difference in the long run, either way you get those tax benefits. Definite thumbs up from me.