Health Security Accounts: Why do Doctors need this security? The question has come up recently as some doctors are rushing to finish 2020 taxes. And other physicians are already casting apprehensive eyes toward 2021.
Physicians sometimes think they are super beings. They believe they really are super energetic, tough professionals. Such doctors believe they will never get sick enough or hurt badly enough to need financial help beyond their regular high-premium insurance. They also have no idea how to optimize the tax benefits of health savings plans. They have “bought” their own press image as a super being who will never get ill or injured.
Who Is Taking Advantage of Health Security Accounts?
Physicians on FIRE, that is doctors who hope to attain a fixed income and retire early. *F.I.R.E., do not buy their own press. They might project that same super energetic, supernaturally healthy attitude, but it is only an image. In their minds and hearts, such physicians know what they need:
- They need to have maximum savings protection for the health and accidents that can destroy family income and security.
- Likewise, doctors know they need as many tax benefits as possible.
Smart physicians also know that the cute new Cuddy Cabin boat would be a lot more fun than contributing to more insurance accounts and retirement funds. However, let us show you that the Health Savings Account makes a much smarter investment. We’ll show you how. Besides, the Cuddy Cabin will be just as cute a few years down the line.
Why Do Doctors Need to Maximize their Health Security Accounts Now?
Physicians (and entrepreneurs) with this insight also know they can benefit highly from any tax savings and tax breaks in their strategy. So, in this blog article, we are taking a deep dive into the savings advantages of a Health Security Account, an HSA.
And, with strategic tax planning, and appropriate life choices, both doctors and entrepreneurs can profit from these accounts whether destiny keeps them healthy. The experts at Invent Wealth CPA can show you how.
How Do Doctors Optimize the Use of Health Security Accounts?
The Need for health security accounts is obvious once a physician has discovered a few important points:
- You must know, “Health Savings Accounts (HSA) are tax-advantaged accounts you can use to save money to pay for medical care.
- And yes, that knowledge is probably obvious. Less well-known is that “Health Savings Accounts are also an excellent vehicle for retirement savings…” You see, the money you contribute just grows and grows, free of taxation. You withdraw it only for medical expenses until you turn 65 years old. In fact, they are very strict about what you can consider a medical expense that justifies any withdrawal.
- And then, you get that retirement advantage because you can withdraw it for any purpose after you turn 65. That is how you can, in our words, “invent wealth.” And now you know why the executive tax accountants at Invent Wealth CPA want you to take advantage of this program.
What is the Catch in a Health Savings Account?
There is no catch, except the restriction mentioned above. Likewise, you might consider it a catch that you might have to discipline your luxuries in life. Why? Health Savings Accounts make you the most money eventually, only if you can maximize the amount you contribute to them. The government will set the limit. Read on for numbers.
And there are rigorous restrictions about eligibility for a Health Savings Account. (By the way, if you need to know a little more about retirement and taxation, this might be a great tool, by the way: Retirement Planning: An Introduction | The Motley Fool)
So, who is eligible for a Health Savings Account, Doctor?
However, given we preface the following information with a reminder that health insurance is a constantly shifting landscape. Below, please tour some basic terms and matched numbers. (According to the financial gurus at Motley Fool.) We do not expect these rules to change in 2021, but we take these parameters with a grain of salt in our often changing financial climate.
All About Health Savings Account Eligibility
In the first place, only doctors who have a qualifying high-deductible health insurance plan, HDHP, can open a Health Savings Account. According to the experts, for 2021, here is how you get to join the club.
- At the lowest level, “You have self-only coverage (individual coverage), and your plan has a minimum annual deductible of $1,400 and a maximum out-of-pocket limit of $7,000.”
- Higher on the cost scale, “You have family coverage. And your plan has a minimum annual deductible of $2,800 and a maximum out-of-pocket limit of $14,000.”
Please understand, “if you do not have an HDHP that meets one of these requirements, you cannot save in an HSA.”
A Quick First Aid Guide for Health Savings Account Contributions
You will deposit your contributions to this special account with pre-tax dollars.
- Thus, you can claim a deduction for contributions in the year they are made.
- As we stated above, the account limits how many dollars you can contribute annually. Let us peek at what you can put in that account now.
- If you have self-only coverage, you can contribute only up to $3,600.
- But with family coverage, you can contribute up to $7,200. Think of this as being able to defer over $7,000.00 from your income.
- By the way, if you are 55 or older, you can make an additional $1,000 catch-up contribution.
And we add a big plus to the value of your Health Savings Account if you have employers who contribute to your Health Savings Account. Do not forget to include them in your annual report total.
What happens if a Doctor Makes Withdrawal from the Health Savings Account?
- Understand you need not use money in the year you contribute to the account.
- Amazingly, you can invest your HSA funds and just leave your money to keep growing, but that might be a topic for another whole blog. If you are curious, please contact us or at least, check out this specialized article.
- Once you set up your Health Savings Account, you have a rule you must never forget. Put simply, restrain yourself from withdrawing money for anything except absolutely eligible medical expenses. If you do make a withdrawal, remember you will suffer a 20% penalty. (The only exception to this rule is that it does not apply after your 65th
How Can Your Health Savings Account Punish You?
By the way, that 20% penalty counts as real punishment. It is twice what an early withdrawal from your 401K or your IRA accounts would cost you. And just to add insult to injury, you will also pay regular, ordinary tax in addition. We believe the next burning question in your mind would likely concern what you can consider medical expenses for deductions from your Health Savings Account.
How To Avoid a Penalty on Your Health Savings Account
Below we provide you with a shortlist of approved withdrawals. However, you can get the whole story from this reliable source of tax information.
Your absolutely approved list of health expenditures, justifying withdrawal from your Health Savings Account, includes such obvious medical listings as these:
- Ambulance services,
- Acupuncture and chiropractic care,
- Dental services, including dentures.
- Infertility care,
- Prescription medications,
- Eyecare, including contact lenses and glasses,
- And hearing aids.
And if you are on the family plan, you can purchase these and many other medical expenses for your dependents. You can pay for these and other qualifying expenses for yourself, as well as for eligible dependents.
Terrific Take-Aways from Your Health Savings Topic
If you are hungry for more details about the health savings account, do not worry, we are bringing you more details in next week’s blog.
As you might have guessed, our theme this month concerns retirement planning with a little tax guidance. On the one hand, you might think that time exists many years from your current life situation. On the other hand, that time might be just around the corner.
Either way, when do you want the option to retire, even if you do not feel ready? If you want to invent wealth to support that retirement, start planning right away. Invent Wealth CPA will show you how to maximize much more than your Health Savings Account. We want doctors to remain healthy fiscally as well as physically.
Just consider this comment, attributed to George Foreman, for deep consideration. “The question isn’t at what age I want to retire — it’s at what income?”