The best news is that the account’s profits grow tax-free and distributions are tax-exempt, if used for qualifying medical expenses as defined by the IRS, which is a generous list expanded by law. CARES, including Medicare and long term care insurance premiums. .
With tax-deductible contributions, tax-exempt growth, and tax-exempt qualifying distributions, this triple tax-exempt feature makes HSAs one of the most tax-efficient savings vehicles.
When investing funds in the account, you should consider your risk tolerance and time horizon for accessing the funds as you will expose the account to investment risks.
Despite the long term tax benefits, many people still use the accounts for ongoing medical expenses before retirement due to the high cost of health care.
While this still gives you a tax advantage because of the contribution deductions, you overlook the potential tax benefits.
If you can pay ongoing medical bills from cash reserves and let the funds in the account grow, the HSA can be used to build a pool of funds for retirement health care costs which, if they are. correctly used, are never imposed.
Distributions not used for qualifying medical expenses before age 65 would result in penalties. Once you reach the age of 65, you can access the account for any reason; however, distributions used for expenses other than qualifying medical expenses are taxed as ordinary income, such as IRA distributions.
