By Dave Horwedel, CEO of Torchlight Tax.
An HSA (Health Savings Account) is a great way to SAVE TAX DOLLARS.
Many taxpayers miss out on using or creating one and thus PAY MORE ON TAXES THAN THEY NEED TO!
You may already have an HSA through your employer. This is fine. You can also set one up yourself.
This topic can get a little technical. If you’d like help going over it or have questions, feel free to call us for a free consultation at 877 758 7797 or info@torchlighttax.com.
To open and contribute to an HSA, you must have—or set up—a High-Deductible Health Plan (HDHP).
Note: A regular health insurance plan will generally make you ineligible for an HSA.
If you live in a state that penalizes you for not having minimum essential medical coverage, an HDHP combined with an HSA can help you avoid those penalties.
Why Use an HSA?
A Health Savings Account (HSA) is one of the most effective tools for reducing your tax burden while saving for medical expenses.
Here’s why:
- Your contributions are tax-deductible.
This means you can reduce your taxable income for the year just by contributing to your HSA. - Your money grows tax-free.
Any interest or investment gains inside your HSA aren’t taxed. - You can make tax-free withdrawals.
As long as the funds are used for qualified healthcare expenses, you won’t owe a cent in taxes.
2025 HSA Contribution Limits
For 2025, the contribution limits are:
- $4,300 for individuals
- $8,550 for families
These contributions reduce your taxable income directly.
For example:
If you’re married filing jointly with a taxable income of $106,000, you’re in the 22% tax bracket.Your tax savings would be 22% of $8550 = $1881.00.
As your income increases, your tax savings increase. In the top tax bracket, 37%, your savings would be 37% of $8550=$3164.
You can invest the money within the account and let it grow tax-free over time. If you want to invest in Real Estate, you must create a self-directed HSA to do this.
As your account grows, based on your actual medical expenses paid off and how your investments perform, you could accumulate a down payment for a rental property. If you purchase real estate using your HSA, HSA investment income can accumulate tax-free as your rental real estate produces income and accumulates value.
You can use HSAs to create a significant emergency medical fund, especially if you and your family don’t use all your HSA contributions every year and invest wisely.
Let’s be real. You are on planet Earth. You will probably need money for medical expenses sometime!
What Happens to Your HSA after you retire?
Contributions:
- You can’t contribute to your HSA after you become eligible for Medicare, which usually begins at age 65.
Using an HSA for Qualified Medical Expenses:
- You can use HSA funds to pay for any qualified medical expenses.
- Withdrawals used for qualified medical expenses remain tax-free.
- You can use your HSA to pay for your share of retiree medical insurance premiums if your employer provides them.
- You can use your HSA to pay for Medicare premiums, deductibles, copays, and coinsurance.
Using the HSA for Non-Medical Expenses after Age 65:
- Once you turn 65, you can withdraw money from your HSA for any purpose, not just medical expenses.
- These withdrawals are taxed as ordinary income, just like withdrawals from a traditional IRA or 401(k).
- There is no penalty for withdrawing money for non-medical expenses after age 65,
If you are interested in an HSA or other tax-saving strategies, contact Torchlight Tax for a free consultation. at 877-758-7797.
You can also find more information on HSAs and many other tax-saving or asset protection strategies on the Torchlight Tax YouTube channel.
Disclaimer: This content is intended solely for general informational purposes and does not constitute professional advice in areas such as accounting, tax, finance, investment, or law. Neither the author nor the distributor accepts any responsibility for actions taken based on this information. The content does not provide a comprehensive overview of any subject. Always consult a qualified professional before making decisions related to your business, finances, or legal matters.
