Happy Tax Day! Just about every year, April 15th serves as the deadline for filing one’s personal income taxes. Whether or not you feel you pay too much in taxes, we’d always advise anyone to be thoughtful about their tax planning, consult a tax professional, and do whatever they can (within legal and ethical guidelines, of course!) to ensure that they don’t overpay unnecessarily.
There is a lot of attention put on tax strategies that help you reduce your tax payments today. Surely, contributions to things like traditional 401(k) plans and SEP IRAs may reduce what you pay to the IRS this year. Often, though, those serve as ways to just POSTPONE taxes, not necessarily to REDUCE your tax liability (given that you’ll pay some sort of tax on the withdrawals one day). But hey…paying less today often feels good.
All that said…there’s one thing that, if used properly, can truly help you both reduce AND completely avoid income taxes, today and into the future. It’s often hidden in plain sight, and we’re surprised how many folks don’t think about it.
It’s a Health Savings Account, or HSA.
What’s an HSA? You ask…
An HSA is a tax-advantaged savings account designed to help individuals and families reduce the taxes they owe on money they allocate towards future medical expenses. There are some key rules about them, and they are not necessarily for everyone. For instance, one rule is that you must be enrolled is a Qualified High Deductible Health Plan; another is that you cannot be claimed as a dependent on someone else's tax return.
And of course, there are limits to how much you can contribute to an HSA. For 2025, the limit is $4300 per single person, and $8550 per family. If you are over 55, there is an allowable “catch-up” provision that enables you to contribute an additional $1000.
What’s really cool from a tax perspective is that:
- · Contributions are tax-deductible.
- · Growth (interest, dividends, or investment gains) grow tax-deferred.
- · Withdrawals (if used for qualified medical expenses) are tax-free.
It’s like the trifecta of tax benefits…
Taking this all one step further…balances can be invested AND rolled over from year to year if not used, essentially making them a potentially great source of tax-free income in retirement.
Of course…in full disclosure…HSA plans are not for everyone, and you should consult your tax advisor to be sure that you are eligible and that all of the above will apply to you. But if you have some basic questions about how they can fit into a well-balanced financial strategy, let us know…we’ll be happy to chat further.
*Guardian does not offer Health Savings Accounts.
Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.